Large installment loans can require hefty monthly payments, and sometimes borrowers can find themselves unable to make a payment for one month or more. Skipping payments, or eventually falling into default, can have negative consequences for your credit report, but there are ways to ensure that it does not. Proactively working with lenders before skipping payments is the key to deferring payments properly with little or no impact on your credit score. Understanding deferment and the process of making payment arrangements can help you protect your credit score.
The term "deferment" most often applies to student loans, although private lenders are often willing to make the same type of payment arrangements with borrowers. For student loans, borrowers are given a maximum amount of time in which their loan can be deferred, and borrowers can choose to use any amount of that time at different intervals until it is used up. According to the U.S. Department of Education, student loans can be deferred up to three years in qualifying situations. Private lenders and credit providers set their own policies and limitations for deferring payments. If a private lender accepts this kind of arrangement, they will likely require you to commit to pay a specific amount on a specific date. Whether it be a student loan or a private debt, interest continues to accumulate on outstanding balances while payments are deferred.
Deferring the Wrong Way
Skipping debt payments without first notifying your lender is the wrong way to defer, and it can lead to several financial consequences. Lenders may tack late-payment penalty fees onto your account, and they may report your missed payments to the major credit bureaus. Whether and when lenders will report missed payments depends on the lender. Contact your specific lender for detailed information on their reporting policies.
Deferring the Right Way
Contact your lender before your next scheduled payment to make deferment arrangements. This ensures that your credit report remains safe from damaging missed-payment reports during the deferral period. For student loans, contact Sallie Mae or your private student-loan company and request an official deferment via phone or online. For private loans, contact the customer service department to request a promise-to-pay arrangement. If a service representative cannot help you, request to be transferred to a manager in the billing department to explain your situation. Even if a lender's official policy does not allow deferred payments, a billing manager may have the authority to make an exception.
Check Your Credit Report
Check your credit report regularly to ensure that lenders do not report missed payments during an agreed-upon deferral period. If your report includes any missed payments or collections from lenders with whom you have not made arrangements, contact them immediately to attempt to reach an agreement. If your report contains missed payments for which you have made arrangements, contact the lender with a formal request to update their report to all three credit bureaus, indicating that you plan to file a dispute with the bureaus if they do not take action.
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