Will Deferment and Forbearance Ruin My Credit?

Students often defer student loan repayment until after they graduate.

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If you are unable to make your student loan payments, you may qualify to postpone those payments through either deferment or forbearance. Deferment primarily applies to federal student loans and is an entitlement for students in certain situations, such as those who are still enrolled in school. A forbearance is similar to a deferment, but the criteria for eligibility vary by lender. Although both deferment and forbearance permit you to stop making payments on your student loans, your credit will not suffer as a result.

Deferment and Forbearance

When you stop making payments on a loan, the lender reports those missed payments to the credit bureaus. The credit bureaus add the missed payments to your credit report. Once the missed payments are a part of your credit record, the credit bureaus take them into consideration when calculating your credit scores and your credit suffers. When your lender defers your student loan payments or approves your forbearance application, it gives you permission to stop making your payments. Thus, the payments you do not make over the deferment or forbearance period are not “missed” payments and the lender does not report them as such. Because your credit history does not reflect missed payments, neither deferment nor forbearance hurts your credit rating.

Credit Impact

Although deferment and forbearance do not hurt your credit scores, the student loan itself has an impact on your credit rating. The amount you owe to lenders and creditors accounts for 30 percent of your total credit score. The loan appears on your credit report and affects your score regardless of whether you are currently making payments on the loan. Over time, as you gradually pay down the loan, the positive payment history and lower loan balance results in higher credit scores.

Student Loan Default

Not making payments to your lender is permissible during deferment or forbearance. These programs are only temporary, however, and you must resume payments when the deferment or forbearance period is over. If you fail to do so, your lender will report your missed payments to the credit bureaus and your loan will fall into default. The U.S. Department of Education warns that a defaulted student loan has a considerable negative effect on your credit scores and can make it difficult to get approved for future loans, housing, utilities and other necessities that require a credit check.

Credit Reporting Errors

No matter how organized a lender's credit reporting system is, all lenders make occasional mistakes. To avoid falling victim to reporting errors, consider reviewing your own credit report during your deferment or forbearance period to ensure that your lender is not reporting your lack of payments as missed payments. Federal law entitles you to an annual copy of your credit report from each of the major credit bureaus free of charge.