Getting a mortgage with late credit card payments is possible, especially if you have only one incident. Although a late payment will likely reduce your credit score, a lender is likely to review your entire credit history before making a decision on your application. You can get a mortgage with one late credit card payment, especially if some time has passed, but your credit score and debt-to-income ratio will need to be strong.
TL;DR (Too Long; Didn't Read)
You can get a mortgage with one late credit card payment, as long as your credit score is good and you have a strong debt-to-income ratio.
Missed Payments Affect Mortgage Application
Missing one credit card payment likely won’t hurt your chances of getting a mortgage approval. A late payment can drop your credit score quite a bit, but if it’s strong already, you likely will still be able to qualify for a mortgage loan. As long as your payment didn’t go beyond 90 days late, you’ll also find that it won’t hurt your score as long as a much-later payment will.
If you want to qualify for a mortgage, but you know you have a late payment, there are a few things you can do to boost your chances. Understanding the many factors that go into getting a loan will help, as will reviewing all your credit reports to make sure there are no errors. Your debt-to-income ratio will play a factor, as well, so you should make an effort to reduce debt and increase income, if possible.
Late Payments and Credit Score
The first way missed payments affect mortgage applications is through the credit score. One late payment can reduce your overall credit score by as much as 100 points, so if your credit rating is strong, it shouldn’t be a deterrent. Credit scores range from 300 to 850, with anything above 670 considered good. A score of 740 to 799 is very good, and 800 to 850 is exceptional.
To qualify for a conventional loan, you’ll usually need a FICO score of at least 620. However, you can go as low as 580 and still qualify for an Federal Housing Administration loan, and even lower if you're willing to put 10 percent on a down payment. A drop of 100 points won’t make a big difference if you started at 850, but if you were already in the 600s, it could be the difference between being approved and rejected.
Late Payments and Lender Approval
Your credit score is a large part of the mortgage approval process, but it isn’t the only determining factor. If you do have a low credit score, and you can demonstrate to the lender that there was a reason for the missed payment, you may be able to get an approval, particularly if you meet the minimum score but it’s just a little on the low side.
In addition to credit score, lenders will also look at your debt-to-income ratio, how much you have in savings and your employment history. Getting a mortgage with late credit card payments may be easier through a small, local bank or credit union since they’ll be able to make a judgment call without the restriction of corporate standards. It may also help to wait a while since lenders will closely scrutinize your last 12 months of payments.
Credit Score and Interest Rate
If you’re trying to get an FHA or conventional loan with late payments, you also should be aware that approval isn’t the only hurdle. Your interest rate will also be set based on your credit score. Those with a credit score of 740 or higher will get the best rates, while borrowers whose credit score drops below 580 will see a rate that is 2 percent higher than the lowest rate available.
Most homebuyers fall in the 680 to 739 range, so although lenders may not scramble to offer you the best rate they have, you won’t see much of an increase here. At 620 to 679, rates will be around 0.5 percent higher, and 580 to 619 will give you a rate up to 1 percent higher than the lowest rate.
Number of Days Late
One late payment won’t do much damage to your credit score, but as they begin to add up, you’ll see a drop. However, the number of days late makes a big difference, as well. Creditors cannot legally report your late payment to the credit bureaus until it’s at least 30 days late. However, many will have their own rules about charging penalties if you pass the grace period.
Payments that are 30 or 60 days will only cause short-term damage to your credit score. Resume paying your bills on time and within a year or two, you’ll see improvement. If you pay a credit card bill 90 days late, though, that damage can stay with you for as much as seven years.
Collections and Mortgage Qualification
Although missed payments affect mortgage application process through your credit score, if you run 90 days late and your creditor turns the bill over to collections, it could be a problem. Your lender will review your credit report and see those collections accounts and probably have questions.
If you have collections on your credit report, experts advise picking up the phone and contacting the collections agency. Request something called a pay for delete agreement, which has you repaying the amount in exchange for the account being removed from your credit report. If the collections agency refuses, be aware that paying the account off won’t keep potential lenders from seeing it.
Cleaning Up Your Credit Report
Since your credit score will be integral to getting approval for a mortgage, you should pull your credit report as far in advance as possible. It’s important to note that lenders will pull credit reports from more than one bureau, so looking at just one won’t give you the full picture. For that reason, it can be really beneficial to pull all three credit reports and scrutinize them before applying for a mortgage.
Since it can be difficult to get an FHA or conventional loan with late payments, it can be even more troubling if you didn’t even know those late payments were on your credit report. In fact, more than one in five consumers has a potentially material credit report error that increases how risky they look to lenders. Your first step should be to go through each report and find any errors.
If you find errors, send a letter to the credit bureau with copies of any documents you have that prove your dispute. Even if you don’t have documentation, dispute it anyway. The credit bureau will conduct an investigation and if your dispute can’t be proven, report the error to all credit bureaus for correction.
Improving Your Approval Chances
Getting a mortgage with late credit card payments is possible, but you’ll need to work on making sure you’re solid in other areas. Disputing errors can help, but you should also be on your best behavior with your payments in the months leading up to your mortgage application. Your recent credit history pays a prominent role, so if it takes a year or longer for you to save up a down payment, that late payment may be so far in the past, it won’t matter.
You should also never discount the importance of a strong debt-to-income ratio. If you can reduce your monthly expenses and somehow increase your income, you’ll be at an advantage. It can also help to save up a sizable down payment, which reduces the amount you’ll be borrowing. Keeping your history as a homeowner and renter as clean as possible will also improve your chances of an approval.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.