How Does a Late Payment Affect Your Credit


A mortgage is considered good debt, and having a mortgage on your credit report is a sign of financial stability. However, a mortgage only contributes to your financial health when you manage it responsibly. This includes borrowing what you can afford and making your payments on time. But even if you have every intention of being responsible with a home loan, you might submit a late payment.

Whether you accidentally forget about your mortgage, or you pay late due to financial hardship, a late mortgage payment has repercussions. Here is what you can expect from a late payment.

Your Lender May Charge a Late Fee

Mortgage payments are due on the first of every month with a 15-day grace period. If you don’t pay your mortgage within the grace period, you’ll be charged a late fee. The late fee can be as much as $40-$50, depending on the lender.

A late fee adds to your mortgage expense because you’re required to pay the late fee along with your monthly payment. But although a late fee is a financial blow, missing a mortgage payment by only a few days doesn’t affect your credit.

Because of how credit reporting works, mortgage lenders cannot report a late payment to the credit bureaus until a borrower’s payment is 30 days past due. For that matter, you don’t have to stress about your credit if you accidentally forget a payment.

But what if you’re having ongoing financial hardship and your mortgage becomes 30 days past due? What can you expect?

Credit Damaged Caused By a Late Payment

Unfortunately, being 30 days or more late on your mortgage will have an impact on your credit score. The gravity of the impact depends on different factors, such as the number of days you’re late and your credit score before defaulting. Typically, the higher your credit score, the more points you’ll lose. For example, if you had a 780 credit score before you were 30-day past due, your FICO score might drop as much as 90 points. But if you had a 660 credit score prior to being 30 days past due, your FICO score may only drop 60 points. Either way your credit score suffers and it’ll take time to recover.

It might take as long as three years to recover from damage caused by a mortgage that’s 30 days past due, and seven years to recover from damage of a payment that’s 90 days past due.

What Can You Do?

The best way to protect your credit is to avoid a late mortgage payment. Of course, we’re sometimes victim of circumstances. But you can reduce the likelihood of mortgage payment problems by purchasing a home within your means—even if it means spending less than your pre-approved amount. This way, you can have a financial cushion and build your cash reserve, which can help keep your head above water during hard times. Ideally, everyone should have at least three to six month’s income in reserves. If you can’t save this much, aim for at least three month’s of mortgage payments in reserves.