You could be one of those people who budgeted everything down to the penny. Your i’s are always dotted and your t’s are always crossed out. But as the quote says, the best-laid plans of mice and men often go wrong. Sometimes we plan everything, but something is still 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 are laid off. A number of scenarios can arise that could put you behind on a mortgage payment.
How you got there is not the problem. So you’ve missed a mortgage payment (or two – or a few). Once you’ve missed a payment, you need to focus on what to do next, like repairing your credit.
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 give you a 15-day grace period to make a payment before you 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. This is when it really starts to have a huge impact on your financial life.
“But that’s just one late payment,” you say. That’s right, but it’s a late payment that carries a lot of weight. When we make a late payment on our credit cards or on our car loan it will be reported, but you won’t notice a huge drop 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 up to 100 points. The higher your score, the more you have to lose.
Each late payment you make after the initial 30-day default has less of an impact on your score than the first. In other words, if you’ve missed more than one payout in a row, it won’t impact your score up to 100 points. It’s a little reassurance if you’re struggling. The other good news is that the older your late payment, the less impact it has on your score. It stays on your credit report for seven years, but a five-year late payment has much less influence than a two-month late payment.
So what’s your shortest path to repairing your credit after you’ve made a late payment? The short and simple answer is to discount your mortgage and continue to make all of your payments on time. But there are a few other things you can do to help encourage that score to go up once you’ve hit a bump in the road.
Building good credit
You’ll want to start building a better credit image so that the other factors on your credit report are in order. They will start to prevail over a few cases of late payment. Have a good credit mix in your history. This includes things like credit cards in addition to personal loans or bad credit payday loans If you don’t have any other credit (let’s say your car is refunded, for example, and you only have one credit card on file), consider opening a new credit card while limiting your credit consumption. According to Nerd Wallet, you want to make sure you don’t have a credit utilization rate above 30%. This means you don’t want to spend more than 30% of your card limit.
Improve your chances
If you’ve missed mortgage payments because you’re forgetful or disorganized, the best thing you can do for yourself is set up automatic payment so that your money is automatically withdrawn on the day you set and you won’t miss out. never a payment again. If you have a lot of debt, consider consolidating these 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 at a lower interest rate to make all of your payments more affordable. These little steps will help you increase your chances of staying up to date on your mortgage payments.
Contact your lender
At Quicken Loans, we have a variety of options to help our customers avoid late payments. We may be able to offer you a forbearance or help you modify your loan if you anticipate future late payments. Contact your lender before your payment is late to give them an opportunity to identify options that might help you. After all, they can’t help you until they know you’re struggling.
As you work hard to improve your credit, be sure to 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 necessary steps to resolve any issues that you find on your credit report. The impact that 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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