Does Unemployment Deferment Affect My Credit?

Borrowers with federal student loans and many types of private student loans can apply to defer payments while they are unemployed. This deferment keeps borrowers from defaulting on the student loans during times of little or no income. Unemployment deferment does not have negative effects on your credit score and might even help you to keep your score up while you are unemployed.

No Direct Effects

Putting your student loans into deferment status while you are unemployed does not directly affect your credit score in any positive or negative ways. Your lender will continue to report your loans as being in good standing while you are in deferment, even though you are not making payments on them. Therefore, nothing will change about how your credit score is calculated.

Avoid Late Payments

Deferring payments on your student loan helps you to keep your credit score from dropping. If you do not enter deferment, you might make late payments on your student loan that would lower your credit score. Lenders usually report late payments 30 days after they are due, and each late payment notice on your credit report lowers your score slightly. Entering deferment protects you from this credit-score damage.

Effects on Other Bills

Not all lenders offer deferment during unemployment. By putting your student loans in deferment, you free your limited savings and income to put toward other bills that still require payments. If your deferment allows you to make on-time payments on all of your other credit accounts, this protects your credit score from the damage that would result from late payments on your credit cards, auto loan, mortgage and other bills.

Exiting Deferment

If you defer your student loans, pay attention to the ending date on the deferment. If you are still unemployed, you can reapply for another time of deferment. Otherwise, you need to make payments again. If you miss a payment after deferment, this will hurt your credit score. In addition, unless your student loan was subsidized, interest accrues during deferment and gets added to the amount you owe when you exit deferment. This might slightly reduce your credit score at that time because part of your score considers the amount you owe. The reduction should be very small, though, and you will bounce back quickly as you begin paying down the balance again.