You missed a due date and think it’s no big deal. You’ll just make the payment and move on, right? What you don’t know is how much that missed payment cost you. We are talking literally and figuratively here. Missed payments can affect you in ways you probably won’t realize until you try to get new credit.
Don’t Miss the Grace Period
Some lenders provide their borrowers with a grace period. This gives you a little cushion to get your mortgage payment made. Let’s say your due date is the 1st of the month. Your bank might give you a 10 or 15-day grace period. This gives you until the 10th or 15th of the month to pay the mortgage without paying a late fee.
If you miss the grace period, though, expect to pay a fee. How much you pay will depend on the lender and even the laws in your state. It may be a percentage of your payment or there may be a flat fee written into your loan documents. Whatever the case may be, you are paying more money for your mortgage, yet it’s not going towards your principal. You just paid a useless fee.
A 30-Day Late
If you miss your grace period altogether and then don’t pay the mortgage before 30 days pass, you now have what the credit bureaus call a 30-day late. At this point, your bank will report your loan 30-days late to the credit bureaus. They will then report that on their credit report. Your credit now has a ‘ding’ or a ‘hit.’
Just how much will your credit score fall because of the late payment? It depends on the reporting credit bureau and the other facets of your credit score. For example, if this is your first late payment and the rest of your accounts are in good standing, you probably won’t see too much damage. If, however, you have a habit of making your payments late, you could end up with a very low credit score. It’s not unusual to see scores drop 90-100 points in some cases.
More Than 30-Days Late
If you don’t make up the payment before the bill becomes 60 days past due, you damage your score even more. Of course, going further into 90 or 120-days late and you are looking at the risk of foreclosure. Lenders usually start sending letters once you hit 90-days late and have made no attempt to bring your account current.
Keep in mind that your payment history makes up 35% of your credit score. While it’s not the entire thing, it does cost have quite an impact on your overall score.
Dealing With a Low Credit Score
Once you hit that 30-day mark or worse yet, your credit score keeps dropping. Even after you bring yourself current and make good on your other accounts, that late payment will cost you for at least the next 12 months. Any time you apply for new credit, the creditor will see the late payment. They will take it into consideration when deciding if they want to lend to you.
Usually immediately following the late payment, you will be unable to get credit. Many lenders make you wait until the late payment is more than 12 months behind you before they will talk to you. That’s how detrimental just one late payment can be for your future.
If you have a VA or FHA loan and plan to use the FHA Streamline Refinance or VA IRRRL program, you cannot have any late payments when it comes to your mortgage. Lenders rely on your mortgage payment history to qualify you for the streamline program. Without timely payments, the lender cannot approve you for the refinance. Without a timely payment history, they have nothing else to go on.
As you can see a late mortgage payment can hurt you, even if it’s only 30-days late. While it might not seem like a big deal at the time, it can cost you for the next year or longer. The late payment you’ll pay will pale in comparison to the difficulties the defaulted payment causes you as you try to move forward.