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As of March, credit card issuers, mortgage lenders and student loan managers have offered financial aid programs to help millions of Americans get back on their feet from the coronavirus pandemic.
Known broadly as “tolerance”, many of these difficulty plans are still in place and may include reliefs such as lowered monthly minimums, skipped payments with waived penalties or late fee, increased credit limits and lower interest rates. When a lender grants a borrower a forbearance on a loan or credit card balance, they initiate an agreed upon period during which monthly bill payments can be reduced or temporarily paused. Interest normally still accumulates during forbearance, and borrowers will still have to repay the balance afterwards.
Abstention in itself has no direct impact on your credit rating, as long as you keep your payments as agreed (i.e. minimum payments or resume regular payments once the abstention ends). However, borrowers who do not fully understand their credit card forbearance programs may fall into a few common pitfalls that can indirectly harm their credit.
Because abstention frees up money in your monthly budget, it can come with a great deal of relief. However, putting things out of sight and out of your mind could lead to neglecting your credit score if you’re not careful.
Here are a few pitfalls you could fall into during your forbearance period that could ultimately affect your credit score.
- Excessive spending: You might think you can spend more because your interest is lower, but be careful to avoid carrying a balance on your card. Qualifying for an interest rate reduction just means that your interest is lower, not that forbearance is interest free. Most card issuers continue to charge daily interest whenever you carry a balance while forbearing.
- Eat your use: If you can’t make payments on your balance, it will stay on your credit report until you pay it off. A higher credit card balanced means your credit utilization rate increases, which is not good for your credit score because lenders find that you are using too much of your available credit without paying it off. Fortunately, your credit utilization rate will improve once you are able to pay off your cards.
- Forget about resuming normal payments: If you were able to skip a series of monthly payments but are unable to resume them, or if you only make partial payments after the forbearance period is over, it can be bad for your credit. Payments on time are the most important factor in determining your credit score. In the worst case, the lender could possibly close your credit account which impacts both your credit utilization rate and also the average age of all your accounts, or the length of your credit history.
Credit card assistance programs are great for temporary budget relief, but it’s always important to track your credit score while being registered for abstention.
To help you do this, Select has ranked the best credit monitoring services and those who made the list are below. These services can automatically alert you to late charges, missed payments, or other negative results on your credit report. And even at the end of your forbearance period, credit monitoring makes it easy to see all of your balances in one place.
Best free credit monitoring services
Highest Paid Credit Monitoring Services
A credit card forbearance program can come in handy if you’re strapped for cash during this time, but just keep an eye out for how much you keep charging your card while your payments have slowed down or your rate is low. interest has declined.
If you’re having trouble keeping up with your credit card bills, immediately call your issuer to see what assistance they can offer you, as you won’t be automatically forborne. Relief is offered on a case-by-case basis. Be prepared to explain how the pandemic has directly affected you.
Since plans vary depending on the borrower’s financial needs and their history with their card issuer, make sure you understand what your specific plan involves and what payments you’ve agreed to make or not to perform.
And once the forbearance program is in place, remember that resuming your regular payments is the best way to keep your credit on track.
To learn more about IdentityForce®, visit their website or call 855-979-1118.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.