Forbearance -- whether on a mortgage, student loan or other financial obligation -- provides temporary financial relief for those who are unable to make payments on their loans due to unforeseen circumstances. Under forbearance, your lender agrees to halt collection of payment for a specified amount of time. This can be anywhere from a few months to several months or even a year in the case of student loans. During this time, you are not obligated to make payments, and your lender will not make collection attempts. While forbearance is often used when people have a financial hardship, being under forbearance in and of itself will not harm your credit score.
Considerations
Your credit score is a measure of several factors, including your available credit ratios, payment history and current debt load. When you cannot afford to make payments, these missed payments are recorded in your credit report and will lower your credit score as time goes on. Even one missed payment can cause your credit score to drop. Forbearance, on the other hand, is not recorded as a missed payment because you have made official arrangements with the creditors. While this can be a good option if you are having a temporary financial hardship, forbearance is not a long-term solution. Additionally, each creditor will have different qualifications you'll need to meet in order to qualify for forbearance, which means you'll have to discuss the option with your lender in order to find out if you qualify.
Benefits
Because your credit score will drop if you miss payments, forbearance allows you to avoid the hit to your credit score without having to make payments you currently cannot afford. Some creditors will not consider debt currently under forbearance as a part of your overall debt when issuing credit, and this can help you get approved for certain types of credit when your debt-to-income ratio is an important factor.
Another benefit to forbearance is the fact that lenders consider working with creditors for payment arrangements to be a sign of responsible behavior. Instead of having your credit score lowered due to non-payment, the forbearance indicates you have made a good-faith effort to work things out with the creditor.
Warning
While forbearance may seem like an ideal solution, it is not for everyone. Intended only as a temporary solution, forbearance will not correct underlying problems in your ability to pay. If you are still unable to make payments after the forbearance period runs out, some lenders may add additional late fees or other payment penalties. And while it won't negatively impact your credit scores to have a single forbearance listed on your report, having several accounts in forbearance may make lenders hesitant to lend to you, regardless of your credit score.
Planning
If you plan to take advantage of forbearance, it's best to act early; if you wait until you are several months behind, your lender may not be able to work with you. This is especially true in the case of student loans, when going into default will remove most options for resolving the debt. As soon as you realize that you will not be able to pay, contact the lender to discuss your options. If you are already a couple of months behind, ask if you can have the forbearance applied retroactively; this is possible with student loans -- in which case your past-due payments will be resolved. That can boost your credit score.
Solutions
Consider forbearance as a temporary solution to a temporary problem. Being laid off, having an unexpected bill such as car repairs or medical bills, or other one-time, temporary expenses fall into this category. If you aren't making enough money to meet your financial obligations, or if you have an ongoing problem with paying your bills, forbearance will not be a viable solution. You must make sure that when forbearance ends, you will be able to resume payments; otherwise, your credit will be negatively impacted.
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