For many US citizens, a home mortgage is the largest investment that they’ll ever make. Once payments start towards a mortgage, those payments will contribute to the homeowner’s credit score, and so on time payments can be a great way to enhance your score. However, the opposite is equally true. Late payments on mortgages have a substantial impact on credit scores, the extent of which is dependent on several factors. A large portion of credit scores is comprised of two main factors—payment history, which is 35 percent, and the amount that is owed, which is 30 percent. Due to the fact that mortgages are usually given for either 30 or 15 years and often are a homeowner’s largest loan, late mortgage payments have a sizable impact on credit scores.
The Number of Late Payments
One thing that influences the impact of late payments is the number of them that was made, as well as the length of time that the bill went unpaid. More recent late payments will have a larger impact than those that were made several years ago, but any information that impacts your credit score will last for seven years. If you’re able to make all of your mortgage payments then there will often be a note beside the loan on your credit history stating “paid as agreed” or “never late”.
The Amount of Time Payment is Delinquent
The amount of time that a payment is delinquent will also have an influence on how it impacts credit scores. If a payment hasn’t been paid in more than 60 days then it will have a major impact on your credit score. If you fail to pay within 90 days then the mortgage lender will start the foreclosure proceedings, at which time your credit score may drop by over 200 points.
When Are Payments Considered Late?
You must look at the terms of your mortgage in order to determine when a mortgage payment will be considered late. In most cases, mortgage payments are expected on the first day of every month. If you turn the payment in within three days that it is due then the lender typically won’t consider it late. In many cases, mortgage lenders will give homeowners 15 days to turn in their loan payments before they charge a fee. Once your payment hits the 30-day late mark, it will definitely be considered late and credit bureaus will be notified.
Pre-Delinquency Card History
The effect that overdue mortgage payments have on your credit history will also depend on your pre-delinquency credit history. If you’ve had a superb credit rating up until the point that you made a late mortgage payment than one single late payment could cause your score to drop down by at least 100 points. On the other hand, if your credit rating was just sub par then a late payment will result in a smaller drop of just 50 to 80 points. This is due to your perceived risk, as borrowers that have great credit histories aren’t expected to make a late payment and so their late payment will be penalized more harshly.
How to Lower a Late Payment’s Impact
There are ways to lower the impact that a late mortgage payment has on your credit score. It’s critical that you turn in the late payment as quickly as possible. After this, make sure that you stay up-to-date on all your payments from that point forward. Each time you make an on time payment after turning in a payment late, your credit score will increase slightly. It’s also important that you turn in all other types of credit payments on time. This will aid you in repairing the damage that was caused by making a late payment. Due to the frequency that homeowners turn in overdue mortgage payments, some mortgage companies, and banks now provide a free pass for one late mortgage payment every two years before it affects credit scores. Inquire with your mortgage lender to find out if they will provide this leeway.