No Payment, No Problem: In Rosy World of Forbearance, Official Delinquencies Plunge, Credit Scores of Delinquent Borrowers Jump

by Wolf Richter
Wolf Street

Credit-score algos got fooled by forbearance. Weirdest economy ever where no one knows what’s going on anymore.

So what happens to debt when borrowers stop making payments on their mortgage, credit card debt, auto loan, or student loan, and the lender puts the delinquent loan into forbearance or into a deferral program, and notes the loan as “current,” despite past-due payments, because there is no payment due this month since the loan is now in forbearance? Well, the algo of credit bureaus, such as Equifax, sees that the borrower who was delinquent has “cured” the delinquency and has become “current,” and it then raises the borrower’s credit score. A brave new world, but here we are.

Delinquent loan balances have plunged across all loan types, as these delinquent loans have been moved into forbearance or deferral programs, according to data from the New York Fed’s household credit report for the third quarter.

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