You shopped around, chose a house and lender, signed reams of paperwork at the closing table and are now a homeowner. While you should take this opportunity to relax and enjoy your home, your responsibilities as a homeowner are just beginning. Unless you paid cash for the property, you must make timely payments to your mortgage lender to avoid foreclosure. Provided you bring your loan current, a single missed payment won't cost you your house – but it could cost you your good credit rating.
Technically, any mortgage payment you make after the date the payment is due is late. Mortgage companies, however, typically offer borrowers a "grace period" for making mortgage payments. If you pay your mortgage after the due date but before the grace period expires, you won't incur a late fee and your credit report will remain unblemished. For example, if your mortgage payment is due on the 1st of each month and your loan carries a 15-day grace period, you could make your mortgage payment up to two weeks late without incurring credit damage or late fees.
One late mortgage payment may not seem that significant, especially if your credit report contains plenty of positive information, but a single missed payment can wreck havoc on your good credit – causing your score to drop by as much as 100 points. Unfortunately, having previously good credit does not offset this risk. The higher your credit score, the more points you stand to lose when your mortgage company reports the late payment to the credit bureaus.
A late mortgage payment lowers your credit score, but a tarnished credit record won't loom over your head forever. The Fair Credit Reporting Act requires the credit bureaus to remove late payments from your credit report after seven years. While seven years is a long time to be haunted by a single slip-up, the impact your late mortgage payment has on your credit rating decreases over time. Take care to always pay your mortgage and other creditors on time and you will see your credit score increase even if the credit bureaus have yet to remove the late payment from your record.
Preventing Further Damage
Falling behind on your mortgage payments is a dangerous prospect. It can result in credit damage, and it also results in fees and penalties that may make it challenging to catch up on your payments in the future. If you know you won't be able to make your mortgage payment on time, Bankrate.com recommends telling your mortgage lender about your difficulties as soon as possible. Your mortgage company doesn't want to shoulder the costs involved with foreclosing on your home. Your lender may work with you to help you avoid additional late payments or, ultimately, a foreclosure – both of which damage your credit to a much greater degree than a single missed payment.
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.