How Does Forbearance Negativity Affect My Credit Score?
A forbearance is an option to help homeowners avoid foreclosure. If you are struggling to make your mortgage payment each month, a forbearance can provide temporary relief. Most people are aware of the substantial negative consequences foreclosure brings, but few understand the affects of a forbearance. The impact of a forbearance is based on timing.
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Forbearance Explanation
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A forbearance is an agreement between the lender and homeowner to temporarily suspend payments. At the end of the forbearance period, you are expected to resume making your payments. The missed payments that accumulated during the forbearance must be repaid, typically through a repayment plan. Each creditor has different qualifications needed to grant a forbearance. In most cases, you must experience a temporary financial hardship.
Credit Impact
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Payment history accounts for 35 percent of your credit score. Therefore, missing just one payment can lower your score. If you act before missing a payment, the forbearance will not impact your score. If not, the payments will be reported as late until the forbearance agreement is in effect.
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Forbearance Reporting
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The forbearance agreement with your lender should outline exactly how the lender will report the loan details to the credit bureaus. In most cases, if the homeowner is current on the mortgage at the beginning of the forbearance, the loan may be reported as "paying under partial payment plan," or "deferred." If there is a delinquent balance prior to establishing the forbearance agreement, the lender will likely also report the past due balance to the credit bureaus each month. It will still show as an account in good standing, rather than a negative account.
Considerations
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A lender does not have to agree to a forbearance. A forbearance is only a temporary solution to avoid foreclosure. If you are still unable to afford your mortgage payment at the end of the forbearance period, consider a loan modification or other alternatives, such as short sale.
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