How Badly Will Late Mortgage Payments Affect My Credit Score?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

These days, millions of American homeowners are struggling to stay current on their mortgage payments. If you're one of these unfortunate folks, chances are good that you've thought about slowing down the pace of your mortgage payments. In fact, you might have already made a late payment or stopped paying off your loan entirely. You're probably aware that these actions can have serious repercussions for your living situation, credit score and personal life. At the same time, you might feel powerless to fix your financial situation in any other way. If you're worried about how your late mortgage payments might affect your credit score, you'll need to keep a few things in mind.

The exact credit-score effect of a single late mortgage payment will depend upon several factors. First, the length of the delinquency is crucial. If you're a mere 30 days late on your mortgage, your credit score will drop by a measurable amount. However, this credit-score hit won't be overly severe. If you had "good" credit before missing your payment, it's likely that you'd still have solid credit afterwards.

On the other hand, a delinquency of more than 60 days might have a more serious impact on your credit score. After a mortgage has been in arrears for 90 days or more, most mortgage companies initiate foreclosure proceedings. If you're unable to reaffirm your mortgage during the foreclosure process, your credit score could drop by 200 points or more. Even if you had a nearly perfect credit rating before the foreclosure, this kind of drop would dramatically raise your borrowing costs and might make it difficult for you to procure a new mortgage loan. If the loss of your home forces you to file for bankruptcy, your credit score will take an even more serious hit. Your credit score could take up to 10 years to recover from a bankruptcy declaration.

The effect of your late mortgage payment will also depend upon your pre-delinquency credit history. If you enjoyed an excellent credit rating, a single missed payment could cause your score to drop by as much as 130 points. If your credit rating was mediocre, your missed payment might result in a smaller drop of just 70 or 80 points. This is primarily the result of your "perceived risk." Since borrowers with excellent credit aren't expected to default on their loans, such events come as a shock to their creditors. As a result, they're penalized more harshly for so-called negative credit events.

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