How Does Deferring a Loan Affect My Credit Score?

Pausing loan payments can offer some financial breathing room, but it’s important to understand how this may affect your credit score.

If you get laid off or lose a job, keeping up with debt payments can become more challenging. When your budget is stretched thin, having the option to pause payments on credit cards, car loans, or other debts may be appealing. But taking a break this way can impact your credit rating. Read on to learn more about this and your options.

Does Deferring a Payment Hurt Credit?

Here’s the good news: Deferring loan payments does not directly affect your credit scores. In fact, if you’re having trouble making payments, it can be a good idea to defer your loans until you get on solid financial footing. Lenders will report that they’ve paused payments to the credit bureaus (Equifax®, Experian®, and TransUnion®), and this will appear on your credit report, but it will not hurt your score.

That said, deferring your loans can have other consequences for your finances. For example, depending on the type of loan, it may continue to accrue interest while it’s deferred. That means you’ll end up paying more money in the long run. However, if deferring your loans means you will avoid defaulting, paying late fees, and hurting your credit score, the extra interest may still be worth it.

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How Deferring Loan Payments Works

If you’re having trouble making payments on a loan, you can ask your lender if it’s possible to defer them. If they agree, you can temporarily stop making payments on your loan, avoiding late payment fees. Also, your lender will not report missed payments to the credit reporting bureaus.

You’ll need to apply for deferment directly with your loan provider. If you have federal student loans, you’ll apply with your loan servicer. Similarly, if you are interested in deferring your auto loan or mortgage, contact your lender directly. Auto lenders may refer to deferment as loan extension or postponement.

Forbearance vs Deferring Loan Payments

The difference between forbearance vs. deferment can be tricky to parse. For mortgages, forbearance is the pausing of a loan during which interest accrues, while deferment is the option to tack on paused payments to the end of the loan. The terms are also often used to describe options for pausing debt on student loans. Here’s a look at the differences between the two terms in this case.

Deferment	Forbearance
For subsidized student loans, you may postpone monthly payments without accruing interest.	No matter the type of loan — subsidized or unsubsidized — interest accrues. You may make interest payments during the forbearance period or allow them to be added to your principal at the end of the period.
You may postpone unsubsidized loans, but interest will accrue. You may pay interest during the deferment period to avoid having it added to your principal at the end of the period.	Forbearance is subject to certain eligibility requirements .
Deferment is subject to certain eligibility requirements .	Request forbearance from your loan servicer.
Request deferment from your loan servicer.

Which Loan Payments Can Be Deferred?

It’s possible that a wide range of loans can be deferred, from federal student loans to home mortgage loans. Many lenders, credit card issuers, and utility service providers offer programs allowing customers to pause payments due to financial hardship.

Depending on each individual situation, U.S. residents may be able to get relief (at the state or local level) from paying these expenses temporarily:

•   Rent

•   Mortgage

•   Federal student loans

•   Private student loans

•   Credit cards

•   Utility services, including water, electric, and gas

•   Car loans

•   Personal loans

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Will I Be Charged Interest During Deferment?

You will likely be charged interest during loan deferment, with some exceptions. For example, if you defer a subsidized federal student loan, the government may make interest payments for you. Otherwise, with other loan programs, you’ll be on the hook for any interest that accrues during the deferment period.

How you pay interest will likely vary by lender. For example, some lenders may only apply interest rates to your principal, and won’t charge you interest on the interest you accrue. Interest payments may be tacked on to the end of your loan, or they may make your monthly payments larger. They may also be added to your principal amount once your payments restart. In all of these cases, you’ll end up paying more over the life of the loan.

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Federal Programs That Allow Deferred Payments

Here’s a look at programs that may allow deferred payments.

Note: Deferred payment programs may be subject to change over time.

Deferred Payments for Federal Student Loans

Federal student loans offer several deferment options to temporarily pause payments. These include in-school deferment, military service deferment, unemployment deferment, and deferment for cancer treatment or economic hardship. Additionally, rehabilitation training deferment and graduate fellowship deferments are also available.

Deferred payments still count toward required payments for Public Service Loan Forgiveness (PSLF) for those still employed full time, regardless of whether they pay anything toward their loans. Since payments are being suspended automatically, credit score won’t be affected.

As of this writing, Direct Loan, Federal Family Education Loan (FEEL) Program, and Federal Perkins Loan Program borrowers may access general forbearance for no more than one year, allowing them to stop paying their student loans. If you are still unable to make payments after this time period, you may apply again.

Federal Relief for Renters

The main program to help renters who are struggling financially is the Emergency Rental Assistance Program (ERAP), which provides funding to states and local governments to help eligible households with rental arrears, utility costs, and other related expenses. Additionally, the Housing Choice Voucher program (Section 8) helps low-income families, seniors, and people with disabilities afford housing.

Deferring Payments Outside of Federal Relief

Federal forbearance programs can help provide a break from certain payments, but they don’t offer blanket coverage to everyone. For those negotiating deferred payments outside of these programs, it’s important to keep one’s credit score in sight.

Pausing Mortgage and Rent Payments

Borrowers can reach out to their lender to discuss what options, if any, may be available for putting payments on hold.

Those options might include:

•   Loan modification

•   Forbearance

•   Mortgage refinancing, which can mean you lose the benefits and protections that come with a federal loan, such as income-based repayment plans and public service-based loan forgiveness, and you could pay more interest over the life of the loan

Modifying a loan or requesting a forbearance can help protect a credit score if the borrower hasn’t fallen behind on the payments. But any late or missed mortgage payments will still be included on their credit report.

But if a tenant and their landlord don’t have an agreement in place and the tenant wasn’t covered by federal forbearance, it’s possible that late or missed rent payments could be reported to the credit bureaus and negatively impact credit scores.

Deferring Payments on Private Student Loans

With private student loans, it’s up to individual lenders to decide what options, if any, they’ll offer to allow borrowers to ease payment burdens during this time.

That might include:

•   Deferment

•   Forbearance

•   Student loan refinancing

Similar to a traditional student loan forbearance for federal student loans, private student loan forbearance wouldn’t affect the borrower’s credit score. Not all private lenders offer forbearance on private student loans, so a borrower would need to check with their loan servicer.

If a private student loan lender doesn’t offer forbearance as an option, the borrower may want to look into refinancing their private student loans online.

Student loan refinancing allows borrowers to pay off an existing loan with a new loan, ideally at a more competitive interest rate. Refinancing could also help lower monthly payments, making loans more manageable for a specific budget. (Note: You may pay more interest over the life of the loan, as noted above, if you refinance with an extended term.)

Putting Utility Payments on Hold

If someone is unable to pay their electric, water, or other utility bills, they may be able to work with their service providers to defer those payments.

Generally, utility service payments (or non-payments) aren’t reported to a person’s credit unless their account is sold to a debt collector after default.

If you are struggling to make utility payments, it might be a good idea to work out a payment plan with the utility company. Additionally, some states have relief programs for qualifying individuals and families who are struggling to make utility payments.

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Deferring Credit Card Payments and Other Loans

For those with credit cards, car loans, or personal loans, making sure to stay on top of those payments can be critical to a credit score. Remember, payment history accounts for 35% of a FICO® Score.

Pausing Credit Card Payments

Worried about falling behind on credit card payments? Credit card companies may be able to help.

Many credit card issuers offer hardship programs for customers who are having trouble making payments. Depending on the terms of the card issuer’s program, cardholders may be able to:

•   Reduce the card’s annual percentage rate (APR) temporarily

•   Reduce the minimum monthly payment due

•   Waive late fees and other penalties

•   Pause payments temporarily

Cardholders could call their credit card company to find out what hardship options might be available. When negotiating deferred payments for credit cards or any other type of debt, they might want to be prepared to explain why they can’t pay and the nature of their hardship.

If the cardholder is able to get enrolled in a hardship program, understanding the terms of the program is important. If they’re expected to make a payment, for example, even if it’s a nominal one, it’s still important to pay on time to avoid a negative mark on their credit history. Monitoring your credit and tracking your debt can be especially important if you are enduring financial hardship.

Pausing Loan Payments

If a borrower owes money on a car loan or personal loan, they could reach out to their lenders to see whether a forbearance is possible.

For instance, an auto loan lender might offer a skip-a-payment program. Instead of making a regular payment, they might let a borrower skip it and have it added on to the end of their loan term.

Personal loan lenders may offer similar options or allow borrowers to reduce their monthly loan payments temporarily for those who qualify. Checking with the individual lender to inquire about options is recommended.

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Loan Deferment Alternatives

There may be certain situations in which you don’t want to put your loan into deferment or you aren’t able to. For example, perhaps you’ve reached the maximum number of times you can defer a loan, or your request to do so is denied for some other reason. If this is the case, you may want to consider other options.

Your lender may be able to offer some alternatives. For example, they might be able to temporarily lower your interest rate or monthly payment. They might also be able to modify your loan agreement to lower your monthly payments — though you may pay more interest over the life of the loan if you’re extending your term.

Finally, you might consider refinancing your loan. When refinancing, you take out a new loan — ideally with a lower interest rate or better terms — and use it to pay off the old loan.

Staying on Top of Credit Scores During a Crisis

Credit scores are an important part of financial life, and preserving yours during a crisis may be a top priority. Using deferment and forbearance periods to pause payments could help protect a credit score.

However, bear in mind that while a credit score itself may not change, a forbearance can still appear on a credit report and could affect future lending decisions.

The three main credit reporting agencies, Equifax, Experian, and TransUnion, are currently offering weekly free credit reports. Accessing these can be helpful as you get on top of your finances.

The Takeaway

For people facing financial uncertainty, there are a number of programs designed to provide temporary relief. Current programs can help borrowers defer their federal student loan payments, and some borrowers may be eligible to pause mortgage payments. Those struggling to make payments can consider talking to their lender to see what types of plans are available.

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