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Does mortgage forbearance and deferment affect your credit?

While they may sound alluring, they could impact your financial state in the future.
Credit: Getty Images/iStockphoto

PHOENIX — If you lost your job or your hours got cut and you're finding yourself going further into debt during the coronavirus crisis, you just might be eligible for relief in paying bills. It’s relief that that could help prevent damage to your credit from late payments.

You have to apply for most of them and while they may sound alluring, they could impact your financial state in the future.

"When you request this, you're saying to your lender that you have problems, because of the pandemic, you have financial problems, you're admitting this," said Michael Sullivan, a personal finance consultant at the nonprofit credit counseling agency Take Charge America in Phoenix.

He shares what you need to know if you plan to take advantage of the forbearance.

"They by law cannot report you to the credit bureaus," he said.

Sullivan says under the terms of the Coronavirus Aid, Relief and Economic Security Act, also known as the CARES act, if you take the 6 months or the entire 360 months from any federally insured mortgage, they cannot report you as being a default and it cannot affect your credit score.

"VA and National Housing Act, a bunch of things, if you have any of those, they cannot report you," said Sullivan.

He says the actual terms don't change, but the payments you miss are added on to the end of your loan.

"There is an extension,” he said. “The bad part is, you're going to be paying your mortgage that much longer, for the same interest rate, so it's not going to really save you any money, it's just going to delay when you make those payments."

But here's something to consider – even though it won't hurt your credit score, it's still recorded by the lender and it could potentially affect future decisions.

“You are letting them know you have problems,” said Sullivan. “Once they know that, they're not going to forget it. If at the end of the period you try to refinance or something, they may be a little skeptical.

So, the bottom line? When you request a forbearance on any kind of a loan, ask questions, before asking for relief. That will ensure you make informed financial decisions.

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