Forbearance and Your Credit

Blog Post07/22/2020
Credit Advice Financial Hardship
Forbearance and Your Credit

In addition to public health concerns, COVID-19 has led to widespread financial hardship. Our Consumer Financial Hardship Study shows that over half of Americans have been impacted financially by the pandemic. Seventy percent of those affected are worried about how to pay bills and loans. If you’re one of many people struggling, many companies are providing repayment options for customers in need.

What is forbearance?

Forbearance is a common word for a financial accommodation. It often describes a temporary change in payment terms for your account. This change can be negotiated with your lender and may include suspended or reduced payments.

Loan forbearance is typically used to describe mortgage payment accommodations. But lenders may offer payment alternatives to financially strapped customers on student loans, car loans, credit cards and small business loans, among others. In fact, 69% of respondents in our wave nine study said their companies have reached out proactively about options that may available to them during this time.

Reach out to your lenders for specific information

You don’t have to wait for your lender to contact you to enroll in a financial accommodation plan. Contact companies you have accounts with as soon as you can; 60% of Americans already have. It’s best to contact your lender before you miss a payment. Even if you’ve already missed one, you could still benefit from reaching out before you miss any more.

Every lender is different, and each likely has their own terms and eligibility for their hardship programs. If you’re worried about how you’ll repay missed or partial payments, don’t let that stop you from talking to your lender about options. Explain your financial situation and get clear descriptions of the accommodation terms. This can help you agree to a manageable plan for your situation. It can also help keep you from missing payments unnecessarily.

How financial hardship accommodations may appear on your credit report

It’s up to each lender to decide how they will report financial hardship accommodation plans to the credit reporting agencies. Due to COVID-19, many lenders have been offering a payment holiday accommodation. If you’ve enrolled in a payment holiday, your lender or creditor may report your account as active, but with $0 due. If that is the case, your current balance will show in the ‘Balance’ field. However, the ‘Terms’ field would state there is no payment currently due.

Below are a few other common ways financial hardship plans may appear on your credit report:

Remark Description Where
AFFCTD BY NATRL/DCLRD DISASTR Your lender is reporting that your account is affected by a natural or declared disaster.
  • In the ‘Remarks’ field for the affected account.
  • If reported for multiple months, it will also appear in the account payment history grid.
ACCOUNT IN FORBEARANCE Your lender is reporting that your account is in forbearance.
  • In the ‘Remarks’ field for the affected account.
  • If reported for multiple months, it will also appear in the account payment history grid.
PAYMENT DEFERRED Your lender is reporting that your payment has been deferred.
  • In the ‘Terms’ field, where it will also display the payment amount and number of months being deferred.

 

Forbearance repayment options

The CARES Act provides guidance for federally backed mortgages and student loans. If a private company backs your debt, available financial hardship plans will vary. If you’re exploring options for multiple bills or loans, consider how you plan to repay them all when the forbearance period ends.

The financial accommodation your lender offers likely will not forgive the loan. It probably will not permanently change your loan terms either. Usually, you'll have to repay with a repayment plan, loan modification or loan reinstatement.

  • Repayment plan: make normal payments plus extra each month until you make up for paused payment
  • Loan modification: make normal payments, but it takes longer to pay off the loan
  • Loan reinstatement: make a lump sum payment of everything you owe (the outstanding balance) when the forbearance period ends

Lenders may not offer all these plans, so be sure to ask them what they have available for their customers.

Learn more about forbearance and financial accommodations for specific types of credit:

Disclaimer: The information posted to this blog was accurate at the time it was initially published. We do not guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. For complete details of any product mentioned, visit transunion.com. This site is governed by the TransUnion Interactive privacy policy located here.

What You Need to Know:

There are various types of credit scores, and lenders use a variety of different types of credit scores to make lending decisions. The credit score you receive is based on the VantageScore 3.0 model and may not be the credit score model used by your lender.

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