A checking account account snafu resulted in a mortgage late payment on my credit report about five years ago. I’ll spare you the details, but suffice to say it was one of those horribly frustrating, “I can’t believe this little mistake is going to mess up my credit for seven years” situations we hear of often on Credit.com. And, of course, I am reminded of it every time I check my credit reports or scores and that late payment pops up.
But really, I was quite lucky. My credit scores dropped, but didn’t plummet. That’s not always the case, though. In fact, falling behind on a mortgage payment can have serious consequences for your credit scores.
“Becoming 30 days delinquent on a mortgage loan can cause a high credit quality consumers’ credit score to decline by as many as 100 points,” warns Sarah Davies, Sr. VP, Analytics, Product Management and Research with VantageScore. “This is typically the largest impact from a specific type of product (auto, card, mortgage, etc.)… because it’s often the largest loan amount and as a result it signals a greater likelihood that the consumer will ultimately default.”
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When it comes to late payments, scoring models look at late payments in several ways: recency, frequency and severity. In other words, most scoring models look at when were you late (recent late payments are worse for your credit), how many times you paid late, and how far you fell behind (30 days or 120 days, for example). And, as Davies mentions, scoring models may also look at the amount of the late payment .
“A late payment in and of itself doesn’t count any differently because it’s a mortgage,” explains Barry Paperno, credit expert at SpeakingOfCredit.com, formerly with FICO and Experian. But “the greater the past due amount, the greater the damage to your score. Seeing as mortgage payments have greater amounts than most late payments,” the impact can be significant.
If you already have late mortgage payments on your credit reports, don’t get completely discouraged. Over time, damage done by late payments begins to wane. That’s especially true in the case an isolated late payment
or two. (I currently see little impact from that five-year-old late payment.) But if you have multiple late payments of any type, you’re at greater risk of finding yourself with a bad credit score. (You can get your credit scores for free every month at Credit.com. Reviewing your credit scores monthly can alert you to potential problems — so one missed payment doesn’t turn into two, or more!)
If possible, set your mortgage payments on auto pay so they come directly from your checking account each month. If that’s not feasible, mail your payment with plenty of time to spare. Then double check that the payment was properly processed. If you have an escrow account where the lender pays your taxes and insurance, review your annual escrow account statement as the amount paid may vary as a result of changes in the cost of your taxes or insurance. And if you have an adjustable rate mortgage, or are paying through a loan modification agreement, talk to a lender to see whether you qualify for a fixed-rate loan to give you more predictable payments going forward.
Better safe than wincing every time you get your credit reports. Trust me on that one.
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Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights . and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com. More by Gerri Detweiler
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