What Mortgage Loan Delinquency Means for Your Credit Rating

Loan delinquency simply means you have not made a payment on your mortgage for an extended amount of time. Most mortgage contracts specify the exact terms of a delinquency up front. For example, your mortgage may be delinquent if you have failed to make a payment for at least 90 days or owe more than $10,000 in back payments. You and your lender agree to these terms at the onset of your loan. If you do allow your debt to fall into a delinquent status, you will face a multitude of penalties, one of the greatest of which is a credit repercussion.

Late Mortgage Payments

A mortgage is an installment debt. It is also a senior debt in most cases, meaning it will be among the first in line to be repaid if you have to declare bankruptcy. Installments loans and senior loans have a bigger affect on your credit than other, smaller forms of debt. For example, if you are late on a utility bill payment, a very low level debt, you may not even see your score drop. With a mortgage payment, though, even being a week late sending your check in can have a great penalty.

Loan Delinquency

Payments are typically recorded late when they are 30 days past their deadline. After that, there is a 60 day deadline and a 90 day deadline. On your credit report, there is a simple illustration showing how many times you have been 30, 60 or 90 days late on a payment. The longer you delay, the worse impact the action will have on your score. Ultimately, loan delinquency is the result of not only missed payments but failure to respond to attempts to collect. Once you are served with a notice of delinquency, you must act quickly to rehabilitate the loan.

Loan Rehabilitation

You are facing two options once you are delinquent: rehabilitate the debt or allow the loan to go into default. If you can rehabilitate a mortgage, within just two years the negative credit report from the delinquency should fail to further impact your credit. This means you can start fresh simply by making your loan payments that are past due then continuing to make payments on time for the next two years. Start by contacting your lender and stating your intend to repay. Your lender may be willing to work out a grace period for you to rehabilitate your mortgage.

Loan Default

Default is the worst case scenario for both you and the lender. You lose your home to foreclosure. Your credit is practically permanently damaged. Even though the default will technically disappear in five to ten years, you will suffer such a drop in your credit score that future lenders will have warning not to extend you a mortgage. The lender loses because, even though the lender can seize and liquidate your home, it is rare to recover the entire sum owed on a mortgage through a foreclosure process. Further, the foreclosure process is a hassle and an expense for the lender, making it even less desirable an option.