Does Loan Deferment Affect Credit?

It can be stressful to take on large loans to pay for things such as a college education or a house, but it's important to always make your payments on time for the loans you have under your name. Failure to make loan payments on time can affect your future access to credit, which may close significant doors for you later on in life. If you are unable to keep up with your monthly loan payments, you could choose to defer your loan. Before making that decision, however, there are a number of things to consider.

What It Is

Loan deferment is the act of postponing loan payments. People usually turn to loan deferments if they are unable to continue making minimum monthly payments due to economic hardship or emergencies that may include loss of a job, death of an income-earning spouse, a large reduction in salary or an expensive medical emergency. Deferring a loan can result in extra interest paid, making your loan more expensive to pay back in the long run.

Process

To defer your loans you need to contact your lender and ask about their deferment guidelines. Policies vary between lenders and it's important to have a solid grasp about special fees, deferment periods and higher interest rates that come with deferring your loan. If you decide to proceed with the deferment, your lender will most likely send you paperwork that you must fill out, sign and send back to make the deferment official. In general, your lender will then receive and process your paperwork, and confirm your deferment is active via a phone call, email or letter.

Impact on Credit

Loan deferment does not affect your overall credit score, since you are considered "in regular status" while in deferment. Types of repayment plans, including deferment programs, are not reported to credit bureaus and thus do not affect your credit. What will affect your credit is making late payments on your loan or missing payments altogether. This delinquent information will get reported to a credit bureau and will subsequently impact your credit score.

Eligibility

To be eligible for loan deferment, in general you may be asked to prove economic hardship and must also be actively looking for full-time employment of at least 30 hours a week. This employment can be in any field and at any salary level. Also, some lenders may require that you register with a local employment agency who can aid you in finding a job. Lenders may not allow you to defer once you've already defaulted on your loan and missed payments, so it's important to apply for a deferment while you are still in good standing with your loan company.