If you are among the more than 2.7 million homeowners currently in forbearance, you may have some concerns about the impact of delaying mortgage payments under the COVID-19 Coronavirus Aid, Relief and Economic Security (CARES) Act forbearance program might have on your personal credit goals.
The bottom line is that mortgage forbearance as part of the program should have no impact on your credit scores as long as you are able to resume payments once that forbearance period ends, likely later this year. So, for many homeowners who are under the CARES Act protection, that deadline is looming.
The White House announced last week, an extension of the moratorium on foreclosures and the deadline to request mortgage forbearance through June, allowing homeowners to temporarily halt mortgage payments for as long as 15 months, up from 12 months initially.
The idea is that the forbearance period can give homeowners the time needed to find their financial footing after suffering the economic impact of COVID-19. If you are among the millions of homeowners who are on a program, you should know that credit reporting agencies have in place a crisis response plan that enables lenders to report your account in forbearance or deferment using a special code that indicates the account has been affected by a declared disaster.
When your account is reported by your mortgage lender as in “deferment” or “forbearance”, it won’t negatively impact your credit. Account information that is reported by lenders to credit bureaus as required by the CARES Act will not cause consumer credit scores to go down.
However, just because mortgage payments are paused, so you can get back on your feet, you should not take a break on your credit goals. Now is the time to plan for how you will begin repayment once your deferment period ends and your mortgage is reinstated.
For some homeowners, the forbearance period may mix with other personal finance circumstances other than job loss. Divorce, medical bills, retirement, job-related relocation or too much credit card or other debt may also be factors in why homeowners can’t resume repayment.
The good news is that it’s a strong housing market and selling your home may be a great option to keep your credit and finances intact. However, if you recently purchased your home, you may not have had time to build up enough home equity to produce the cash needed to pay off the loan after accounting for transaction costs.
If you’re unable to pay the outstanding balance know that defaulting on your mortgage can bring negative credit consequences. When a loan defaults, it is sent to a debt collection agency, which can contact the borrower and receive the unpaid funds. Defaulting can drastically negatively affect your credit score, impact your ability to receive future credit and can lead to the seizure of personal proper.
To help make sure your credit scores appropriately match your circumstances, be sure to utilize the services of an independent credit monitoring agency.