Does Deferring Your Student Loans Hurt Your Credit?

At first glance, it might seem like deferring your student loans could hurt your credit. After all, you aren’t making payments on a loan that you have, and making late payments is a surefire way to hurt your credit. Fortunately, credit scores work differently.

In order for a payment to be late, it first must be due. Just like a term paper can’t be late until your professor tells you when it’s due, a payment cannot be late before there is an agreement on when it needs to be paid. Not all loans require monthly payments. Some loans, for example, require only a single payment, called a balloon payment, at the end of the loan. As you would expect, not making monthly payments does not count against the borrower during that time.

Likewise, a student loan deferment is an agreement between both the borrower and the lender to wait until a later date for payments to be required. So, an official deferment will not count against your credit as missed or late payments.

There are two general types of deferments. A subsidized deferment means that no payments are necessary, and no interest is accrued. An unsubsidized deferment means that no payments are required, but interest will still accrue. The difference is that when the deferment ends, the final loan amount of the unsubsidized loan will be higher than the final amount of the subsidized loan. This may have a small negative impact on your credit score, because the total amount of money owed is part of the calculations.

However, it is also important to remember that any payments you do make may count as on-time payments, so making payments while in deferment may help improve your credit, so long as the lender reports such payments to the credit bureaus.

If you would like to learn more about improving your credit score, reach out to Key Credit Repair to schedule your free consultation.