Forbearance is a term that has become increasingly visible during the coronavirus pandemic. With millions of Americans still struggling to pay their bills on time, it’s critical to understand how these assistance plans impact all aspects of personal finance. So, does credit card forbearance hurt your credit score?
What Does Forbearance Mean?
Forbearance is a term referring to financial hardship assistance provided by a lender. When a borrower (be it for a mortgage, student loan, auto loan, or credit card) cannot make their regular payments, the bank may offer temporary assistance to let them regroup financially.
Forbearance, therefore, applies to most forms of temporary assistance, including lower monthly payments or even a pause in all payments for a set period.
What Types of Credit Card Hardship Assistance Are There?
Forbearance, or hardship assistance, has especially come to the fore during the coronavirus (COVID-19) pandemic. Nearly every credit card issuer is providing some form of assistance to consumers facing hardships due to the economic impact of the coronavirus.
Some of the forbearance and coronavirus hardship assistance programs available to American consumers include:
- Deferred payments (either with or without interest)
- Delayed payments for the next month
- Waiving of fees (including late fees or annual fees)
For more information on current hardship assistance programs during the coronavirus pandemic, check out our dedicated Coronavirus Credit Card Relief Contact Information page.
How Does Forbearance Impact Your Credit Score?
The good news about credit card forbearance is that it won’t impact your credit score directly. While an account is in forbearance, you won’t experience any adverse effects, provided you keep up with the minimum obligations your card issuer requires.
If your hardship assistance plan requires a reduced payment, ensure you always make that payment, just as you usually would with any other credit account.
While a credit card hardship plan won’t hurt your credit score directly, it opens the door for making common mistakes. These slip-ups, like failing to keep track of your spending, or overall credit usage, can torpedo your credit score.
Both overspending and too much credit usage can harm the two most critical factors in a FICO Score: credit utilization and payment history. Because these two factors account for two-thirds of your total credit score makeup, make sure you always pay close attention to your finances and spending.
Things to Consider Before Asking for Payment Assistance or Relief
Never be afraid to ask for assistance from your bank, including forbearance options. It’s in the best interest of all credit card lenders to work with their customers to help them make their payments. After all, if a credit card account goes to collections, the bank stands to lose out on a considerable amount of money.
Before agreeing to any hardship or forbearance plan, however, make sure you fully understand the program, the terms of it, and any other relevant information. Some good questions to ask the lender include:
- What happens if you miss a payment?
- What types of fees can you expect (if any)?
- How long does their relief program last for? Is it month-to-month, does it extend for several months?
- Can you continue with the assistance program if your financial situation doesn’t improve?
- Will your credit card have a hold on it while in the program, or can you use it as usual?
When times get tough, financial hardship programs, like forbearance, can help you recover financially. These forbearance programs have no direct impact on your credit score but may allow a sense of complacency. That complacency, in turn, can potentially lead to missed payments and overspending – and a credit score drop.
Related Article: How to Negotiate a Lower Credit Card Interest Rate