Does a Forbearance Go on a Credit Report?

A forbearance is an important tool that can be used if you fall behind on your debt payments. The forbearance process can help in temporary delinquencies of mortgage debt, credit cards, car loans and student loans. Before entering into a forbearance agreement, it is critical to understand the impact it will have on your credit rating and credit score.

The Basics of Forbearance Agreements

Forbearance agreements represent formal arrangements with a lender to temporarily suspend required payments or collection efforts. They are used when borrowers have temporary financial crises and need a short period of time to recover. A forbearance can last for a month or several month. Each arrangement is different from lender to lender and a lender does not have to agree to a forbearance. Often, in order to qualify, you must prove to the lender that your situation is temporary and that you will soon have the financial means to catch up and stay current on your debt. The benefit of a forbearance agreement is that it can give you some protection from collection action or even seizure or foreclosure while you work through your financial issues.

Impact on Your Credit Report and Score

A lender will often report that a forbearance agreement has been entered into to the three major credit bureaus. However, the payments that are deferred under the agreement will not be marked as late or delinquent for the duration of the agreement. This means that, although it will be recorded on your credit report, it will not impact your credit score. In fact, potential lenders who read your credit report will see that you are being financially responsible by entering into the agreement and working with your lender.

Working Through a Forbearance

The most important way to ensure that your forbearance agreement gives you the space you need to get your finances back in order is to be realistic about your financial situation. If you are in a mortgage that you will never realistically be able to afford, a forbearance is just going to prolong the inevitable. Use the forbearance period to budget and project. If you believe that you need serious rearrangement of your debt, speak with a non-profit credit counselor who may be able to provide you with other options.

Hidden Dangers of Forbearance Agreements

Each lender has its own criteria for acceptance into a forbearance agreement. Be sure to read the agreement carefully before signing. Some agreements contain clauses that include penalties, extra payments and other nasty surprises that may put you in worse financial condition than when you started. Make certain that the agreement is clear on when you must make up the missed payments and whether there are extra fees or charges.