Missed Mortgage Payments Hurt Credit Scores

Missed mortgage payments, short sales, and foreclosures will undoubtedly bring down your credit score.

Lenders use credit scores to see how credit worthy a person is. Credit scores range from 300 to 850. A mortgage makes up a big part of a person’s credit score and often is the most important part of a person’s credit profile.

And just missing a single mortgage payment by 30 days can affect a credit score. For borrowers, that can be nearly as destructive as a foreclosure to a credit score.

On the other hand, loan modifications, which is when lenders approve new loan terms, have a very,  minimal” impact to credit scores, possibly dropping the borrower’s score by 10 or 15 points. So your first option should be to contact your lender/servicer and ask for a loan modification so your payment can be lower, more affordable.

A good credit score is important not just for financing home purchases, but employers increasingly check credit as well as landlords when seeking rentals. Also, poor credit scores can also mean higher costs on car loans and credit cards.

How a Credit Score Is Affected

FICO evaluated 3 various scenarios of mortgage holders, a borrower with a great credit score (780), a borrower with good credit (720), and a poor credit borrower (680) , in a study it conducted last month.

Here’s the impact FICO found:

▪ 30 days late on a mortgage payment: The 780 credit score borrower has her credit score fall to 670-690. The 720 credit score borrower has his fall to 630-650. The 680 credit score borrower falls to 600-620.
▪ Short sale, deed in lieu of foreclosure, or settlement, assuming the balance has been wiped out: The 780 credit score borrower falls to 655-675; the 720 credit score falls to 605-625; and the 680 credit score drops to 610-630.
▪ Foreclosure, or short sale with a deficiency balance owed: The 780 credit score drops to 620-640; the 720 credit score falls to 570-590; and the 680 credit score decreases to 575-595.