Mortgage forbearance is a temporary financial relief that allows homeowners to remain in their homes while deferring their monthly mortgage payments until they can get back on their feet financially.
For many borrowers, forbearance is a viable option that can help them avoid going into default and facing foreclosure.
It is unmistakably a compassionate concept that recognizes the plight of those who are going through a difficult time. However, there are some drawbacks, and people are left wondering, “does mortgage forbearance affect credit?”
Below you’ll learn whether or not a mortgage forbearance will affect your credit score, along with some other helpful info.
Does Mortgage Forbearance Affect Credit?
No, mortgage forbearance will most likely not affect your credit score. However, in some cases, it may.
Mortgage forbearance does not appear as a negative activity on your credit report. Your lender or servicer will continue to report you as current on your loan even if you are no longer making payments.
Under the CARES Act, missed payments during an allowed forbearance period should not affect a borrower’s credit score.
Federal legislation known as the CARES Act aided economically disadvantaged individuals affected by COVID-19. As part of the CARES Act, homeowners enduring economic hardship could request forbearance and get mortgage relief for up to 18 months if they met specific eligibility standards. Additionally, their property would not be foreclosed during this forbearance time.
You must contact your lender to request forbearance. However, it would be best if you continued making payments until you have been officially granted such protection. Stopping payments before entering forbearance will have a detrimental effect on your credit.
Additionally, check your credit report to ensure that your lender does not mark flag forbearance payments as late. If you find inaccuracies, contest them immediately to avoid reducing your credit ratings.
When Does Mortgage Forbearance Affect Your Credit Negatively?
Except for special circumstances such as the COVID-19 issue, missing or underpaid mortgage payments as part of a deferral or forbearance plan are technically delinquencies. They violate the repayment restrictions outlined in your original loan agreement. Your loan servicer will report a mortgage forbearance to the credit bureaus unless otherwise specified.
If this occurs, it may affect your credit score as a borrower. It represents a time in your credit history during which payments were unpaid (although temporarily). Mortgage lenders can report them to credit bureaus as such but are not obligated to do so. Inquire about your lender’s policy before entering a forbearance arrangement to know what to expect.
Suppose loan servicers discover an incident of forbearance on your record. In that case, they may view you as a borrower who is more likely to default on a loan.
Most likely, a mortgage forbearance may not affect your credit, especially under the circumstances above. However, some lenders may report this to credit bureaus.