Your mortgage is secured by your home, which means that the lender can foreclose and seize the house if you stop making payments. Mortgage delinquencies also hurt your credit because 35 percent of your credit score comes from the promptness of your payments, according to the FICO scoring firm. Forbearance gives you some relief, but it takes time to repair your credit after mortgage troubles.
Definition
Forbearance is an action by your mortgage holder in response to late payments. The lender delays its right to foreclose on your property, subject to completion of a plan to bring the payments up-to-date, according to Bankrate real estate adviser Steve McLinden. Lenders usually extend this offer once you fall at least three payments behind. A typical deal includes a temporary payment suspension or acceptance of a reduced amount for a limited time. You must catch up your payments after the agreed-on time period.
Effects
Your credit is hurt immediately by the late payments leading up to forbearance because lenders continually send updated information to the Experian, Equifax and TransUnion credit bureaus. Lenders usually limit forbearance to people with temporary financial hardships like unemployment, medical issues or emergencies, according to McLinden, so your rating drops even further if those circumstances make you late on other bills. Soon you have trouble qualifying for any other loans or insurance policies.
Repair With Disputes
Your credit report likely contains some mistakes, as the MSNBC Red Tape Chronicles reports that error rates are as high as 25 percent; disputing them is the fastest way to repair your credit. Federal law lets you file disputes with the credit bureaus for any inaccuracies and makes the bureaus handle these issues in 30 days. Use AnnualCreditReport.com to get free credit reports, which the Fair and Accurate Credit Transactions Act lets you do once per year, and search every negative account for mistakes. Send written dispute notices to each credit bureau detailing every error you find. The bureaus have 30 days to confirm the data, or they must remove it. Creditors often fail to respond, which means those negative entries get purged from your credit reports, boosting your credit rating within a month.
Rebuilding Credit
The only way to directly offset the credit damage from forbearance is to rebuild your payment history, since it has such a strong influence on your credit score. Pay all of your bills by their due dates once you get your mortgage and other accounts caught up. Channel extra money onto credit cards, as FICO explains that balance reduction is another effective credit repair strategy. Your rating improves in six months to a year if you manage to keep all your accounts current during that time.
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