Does a Mortgage Forebearance Affect My Credit Score?

Successfully negotiating with your lender to defer or forebear payments for a few months might prevent the creditor from foreclosing on the home, but it could cause significant damage to your credit score. Even if the lender reports your account as current during the forbearance, it is the lead up to the mortgage modification that can cause the most damage.

Considerations

Whether a mortgage forbearance affects your credit score could go either way -- it all depends on what the lender reports to the credit bureaus. Some lenders may agree to a forbearance if it stops foreclosure or any other costly event for the company, but punish you by reporting payments as late or on partially paid during the forbearance, according to Liz Weston of MSN Money Central. When you need a forbearance because of a disaster, such as a hurricane or other disaster, lenders are usually much more lenient.

HAMP

The federal government's Home Affordability Program requires lenders to modify a mortgage, sometimes including a forbearance, if the borrower qualifies for the program. If you enter into this program current on your mortgage, the lender must report the account as "paid as agreed" so long as you meet the reduced payment. If you go into the modification behind on payments and do not catch up during the trial period, the lender reports the account as delinquent and under a federal government plan.

Benefits

You might have to accept damage to your credit score if a forbearance is your only way to save your home. A foreclosure, short sale or giving the deed to the bank probably hurt your score far more than forbearance and you might owe whatever is left on the mortgage if the property does not sell for the value of the loan. Also, when your score is already trashed, a few months late payments do not make as big a splash as they would if your credit was unblemished.

Tip

You must go through a mortgage provider's loss mitigation department to get a forbearance and there you can ask how forbearance will appear on your credit. However, consider other options if it looks like you won't be able to afford the home after the forbearance. Forbearance just delays the inevitable when you own a home you cannot afford. You could sell your home outright, avoid any damage to your score and try another mortgage later. Also, consider other finances you have to sell off, such as stocks and savings.