Since March, credit card issuers, mortgage lenders and student loan servicers have been offering financial assistance programs to help millions of Americans get back on their feet in the wake of the coronavirus pandemic.
Known broadly as "forbearance," many of these hardship plans are still in place and may include relief like lowered monthly minimums, skipped payments with waived penalties or late fees, increased credit limits and lowered interest rates. When a lender grants a borrower forbearance on either a loan or credit card balance, it initiates an agreed-upon period of time in which monthly bill payments may get either reduced or put on momentary pause. Interest normally still accumulates during forbearance, and borrowers will still have to pay back the balance eventually.
Forbearance itself doesn't have a direct impact on your credit score, as long as you keep up with your payments as agreed (i.e., making reduced minimum payments or resuming regular payments once forbearance is over). However, borrowers who don't fully understand their credit card forbearance programs can fall into a few common traps that can hurt their credit indirectly.
Because forbearance frees up money in your monthly budget, it can come with a large sense of relief. However, putting things out of sight and out of mind could cause you to neglect your credit score if you're not careful.
Here are some traps you may fall into while in forbearance that could ultimately affect your credit score.
Credit card assistance programs are great for temporary budget relief, but it's still important to keep track of your credit score while enrolled in forbearance.
To help you do so, CNBC Select ranked the top credit monitoring services and those that made the list are below. These services can automatically alert you of late fees, missed payments or other negative hits on your credit report. And even when your forbearance period ends, credit monitoring helps you easily see all of your balances in one place.
Best free credit monitoring services
Best paid credit monitoring services
A credit card forbearance program can come in handy if you're cash-strapped during this time, but just stay alert of how much you continue to charge on your card while your payments have slowed or your interest rate has decreased.
If you are struggling to keep up with your credit card bills, call your issuer right away to see what assistance they can offer you, as you won't be put into forbearance automatically. Relief is offered on a case-by-case basis.Be ready to explain how the pandemic has directly affected you.
Because plans vary depending on the borrower's financial needs and history with their card issuer, make sure to understand what your specific plan entails and what payments you agreed to make or not make.
And once the forbearance program is up, remember that resuming your regular payments is the best way to keep your credit on track.
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