You could be one of those people who have everything budgeted down to the penny. Your i’s are always dotted, and your t’s are always crossed. But as the quote says, the best-laid plans of mice and men often go awry. Sometimes, we plan for everything but something still goes wrong. An unexpected bill can deplete your savings in the blink of an eye. Or you could find yourself in a situation where your income is cut in half or you’re laid off. Any number of scenarios can arise that could put you behind on a mortgage payment.
How you got there isn’t the issue. So you’ve missed a mortgage payment (or two – or a few). After you’ve missed a payment, figuring out what to do next, like fixing your credit, is what you need to focus on.
But first, let’s talk about what happens when you miss a payment.
Traditionally, mortgage payments are due on the first of each month. Most mortgage companies will offer you a 15-day grace period to make a payment before they issue a late charge. You then have until the last day of the month before they report you to a credit bureau for a late payment. That’s when it really starts to make a huge impact on your financial life.
“But it’s just one late payment,” you say. That’s true, but it’s one late payment that carries a lot of weight. When we make a late payment on our credit cards or our car loan, it will be reported, but you won’t notice a huge dent in your credit score. However, when you make a late payment on your mortgage, it can take years to recover. According to Equifax, if you have a high credit score, say in the 780s, you could lose as much as 100 points. The better your score, the more you have to lose.
Each late payment you make after the initial 30-day delinquency has less impact on your score than the first. In other words, if you’ve missed more than one payment in a row, it doesn’t continue to impact your score by up to 100 points. That’s a small comfort if you’re struggling. The other slightly good news is that the older your late payment is, the less impact it has on your score. It does stay on your credit report for seven years, but a five-year-old late payment has significantly less influence than a late payment that is two months old.
So what is your shortest path to repairing your credit after making a late payment? The short and simple answer is to bring your mortgage current and continue to make all of your payments on time. But there are a few more things you can do to help encourage that score to go back up once you’ve hit a bump in the road.
Build Good Credit
You’ll want to start building a better credit picture so that other factors in your credit report show good standing. They will begin to outweigh a couple instances of late payments. Have a mix of good credit in your history. This includes things like credit cards in addition to personal loans or auto loans. If you have no other credit (say your car is paid off, for example, and you only have one credit card on file), consider opening a new credit card while keeping your credit use low. According to Nerd Wallet, you want to make sure you have no more than a 30% credit utilization ratio. This means you don’t want to spend more than 30% of the limit of your card.
Improve Your Odds
If you’ve missed mortgage payments because you’re forgetful or unorganized, the best thing you can do for yourself is set up autopay so that your money is automatically drafted on the day you set, and you’ll never miss a payment again. If you have a lot of debt, consider consolidating those credit cards into one with a lower interest rate, which, in turn, will have a lower overall monthly payment. Or consider refinancing your other loans to a lower interest rate to make all of your payments more affordable. These small steps will help increase your chances of staying current on your mortgage payments.
Contact Your Lender
At Quicken Loans, we have a variety of options to help our clients avoid late payments. We may be able to offer you a forbearance or help you get into a loan modification if you’re anticipating future late payments. Reach out to your lender before your payment is late to give them a chance to identify options that may help you. After all, they can’t help until they know you’re struggling.
While you’re working hard to improve your credit, make sure you continue to monitor your credit reports. You can get a free report from each of the reporting agencies – TransUnion, Equifax and Experian – once a year. Take the steps you need to clean up any issues you find on your credit report. The impact a single late payment can have on your credit can take years to repair. But if you keep moving in the right direction, you can reverse the damage in time.
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