You pay a lot of bills each month – car payments, student loans, utility bills, cable, cell phone … it’s a long list. It’s not surprising, then, that some of these bills slip past you.
But if you wake up one morning and realize that you forgot to pay this month’s mortgage bill? It might not be time to panic. Even if this payment’s due date has passed, you might not be “officially” late.
The truth is, mailing a mortgage payment one day, one week or even three weeks late won’t hurt your all-important three-digit credit score. And mailing that payment up to two weeks usually, won’t even result in a late fee assessed by your mortgage lender.
That’s because mortgage lenders have a built-in grace period when it comes to their payments. And they usually spell it out right on your monthly mortgage statement: If your mortgage is due on the first day of the month, you’ll probably see a notice on your statement saying that you will face a late-payment penalty if you don’t pay by the 15th of the month.
And if you’re worried about seeing your credit score take a tumble because you’re a week late with your mortgage payment? Don’t be. Mortgage lenders don’t report your payment as late to the three national credit bureaus – TransUnion, Equifax, and Experian – until you are at least 30 days late with your payment, much like with some late credit card payments.
This means that as long as your lender receives your payment by that 30th day, your credit score will not suffer the 100-point drop that commonly takes place after a missed mortgage payment.
There’s even another little-known loophole, having to do with how the three national credit bureaus communicate with mortgage lenders, that might give you even a few more days after the 30-day deadline passes to avoid a hit to your credit score.
Still, even with this leeway, it’s not the best idea to send your mortgage payments past the due date for one reason: As you continually miss your deadline date, you might get into the habit of paying later and later. And, one day, if you pay late enough to actually miss that 30-day cutoff point? Your credit score will fall hard, said Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage.
“Getting a 30-day late will have a dramatic negative impact on your scores,” Fleming said.
Leeway for late payers
You really have no excuse for accidentally paying your mortgage 30 days or more late.
Sure, if you are struggling financially and you don’t have the money to make your payment, missing your due date by that much is understandable. But merely forgetting to make your payment for an entire month? That should never happen.
In fact, your mortgage lender will probably contact you before your payment hits that 30-day-late mark. They’d much rather receive your monthly payment before this deadline instead of having to report your payment as officially late to the credit bureaus.
“We make a concerted effort to reach out to our members before we have to report to the credit bureaus,” said Jen Kostelnik, assistant vice president of loan servicing with Herndon, Virginia’s Northwest Federal Credit Union. “If our members are struggling to make payments, we encourage them to examine their budget and see where they can make improvements.”
Northwest Federal Credit Union takes an approach that is similar to most financial institutions when it comes to late mortgage payments. Payments here are due on the first of every month, Kostelnik said. The credit union, though, has a 15-day grace period before it charges late fees.
When a payment is 30 days late, Northwest Federal Credit Union finally reports to the credit bureaus, Kostelnik said.
When is a mortgage payment late for you?
Whether you’re comfortable pushing your mortgage payment past its official due date, depends largely on your financial personality. Matt Hackett, the operations manager for Equity Now Inc. in New York City, said that “late” means different things for different consumers.
Hackett says that he has worked with some consumers who consider any payment made after the due date to be late, and they’ll do whatever they can to avoid sending their mortgage payment even a day after it is officially due.
Other consumers are more pliable, he said and worry more about amassing late fees than they do by meeting an “official” due date. These consumers usually make sure to pay their mortgages before the 15-day mark that most lenders use as a cut-off point for levying late fees.
“If you are a spirit-of-the-law type, then you should pay the mortgage on or before the first of the month in most cases,” Hackett said. “The late fee is generally triggered 15 days past the due date, so if you want to avoid the late fee, you should pay the mortgage within the 15-day grace period.”
If you are slow in making your payment and you happen to miss that 15-day grace period, how big of a late fee will you face? That varies by lender. But Fleming says that lenders typically charge a late fee of 5 percent of your monthly payment.
If you want to determine exactly what fee your lender charges, and when a late fee kicks in, you can find this information on your mortgage note, Fleming said.
Even more leeway?
The 30-day reporting deadline sounds straightforward. But there is one potential loophole. Fleming says that mortgage lenders don’t report to the national credit bureaus daily. Once a month, the computers at these entities talk to each other, with lenders’ computers downloading the monthly activity for all of its customers in one batch. This usually happens toward the end of the month.
What does this mean for late payers? According to Fleming, if your payment is due on March 1 and you finally make it on April 3, it is unlikely that your lender’s computer has reported you late yet. This means that you still have time to avoid a big hit to your credit score even after your 30-day window has passed.
Fleming recommends that instead of sending your late payment in by mail, you should call your lender and make your payment over the phone. You should then ask your lender if it will delete the notation from your record that you are 30 days late.
“Most lenders will,” Fleming said. “Some won’t.”
But this loophole does give you one last chance to avoid seeing your credit score fall by 100 points or more.
Why it FICO score matters
You might not think that a drop in your FICO credit score matters. But it does. Lenders today rely heavily on this three-digit score to determine who qualifies for mortgage loans, auto financing, and credit cards. If your score is low, you might not qualify for these loans. If you do, you’ll be hit with a higher interest rate that makes borrowing money more expensive.
And if you do qualify for credit cards when your FICO score is a low one? You can expect that these cards will come with high-interest rates and no rewards programs.
There’s a reason for all this: A credit score tells lenders how well you’ve managed your credit in the past. A low score means that you have a history of late or missed payments in your recent past. Lenders will be less likely to take a chance on loaning you money.
A single late mortgage payment sticks with you for a long time, too, staying on your credit reports for seven years before finally falling off.
This is why it’s so important to make your mortgage payments before that 30-day deadline every month. If you are struggling to make your payment on time, call your lender immediately. Your lender might be able to offer you some financial relief.
Some might lower your interest rate as a way to lower your monthly payment. Others might provide you with a few months off from making a payment, giving you a chance to catch up.
“If you get into rolling lates where you are a month behind but can’t quite catch up, talk to your lender,” Fleming said. “They are required by the Consumer Financial Protection Bureau to have a written policy to help struggling homeowners. They don’t have to actually help, but they must have a policy.”
Fleming said that most lenders will, at least, waive late fees to help homeowners catch up. Some lenders will go so far as to take your past-due payments and wrap them into a repayment plan designed to leave you with a monthly payment that you can afford.
Of course, you won’t know if your lender can help if you don’t make that call.
“Always call your lender,” Fleming said. “Explain the situation and work something out. It is an uncomfortable phone call to be sure but in the long run, you will have better credit and fewer fees.”