How does being late on your mortgage affect your credit? The short answer: It depends.

When you hear about credit scores, what people are most often referring to is a FICO® score. Your FICO score is a way to summarize your credit risk at any given moment in time. The score takes into account your payment history, outstanding debt and length of credit history, among other things. Any potential lender will look at this score to determine how much of a risk you are and what interest rate you will be charged as a result of your risk level.

So, what happens to your credit score when you fall behind on your mortgage payment? That depends where you started. People with higher credit scores actually take more of a hit when they fall behind on their mortgage and when they go through foreclosure. For example, according to FICO:

Homeowner A

• Starting credit score: 680
• 90 days late: 610 (70 point drop)
• Foreclosure sale: 585 (95 point drop)

Homeowner B

• Starting credit score: 780
• 90 days late: 660 (120 point drop)
• Foreclosure sale: 630 (150 point drop)

While Homeowner B still comes out with a higher score after foreclosure, their drop in overall points is significantly greater than that of Homeowner A. This is likely because Homeowner A has some non-mortgage delinquencies or credit issues that have already lowered their score, so the effect of the mortgage delinquency isn’t as great. It also takes longer for a homeowner with a high credit score to recover their previous credit status after a delinquency or foreclosure.

When dealing with a mortgage delinquency, the options that allow you to keep your home typically have the least impact on your credit. Most loan modifications, including those offered through the federal government like Making Home Affordable, will not affect your credit score. Any negative credit impact comes from late payments that happened prior to the modification. A forbearance agreement or repayment plan can additionally tag on a negative impact to your credit score if your lender reports you as paying under a partial payment agreement.

Non-retention options such as short sale and foreclosure sale will have the biggest hit on your credit because of the level of delinquency and failure to pay on the loan as agreed. A common assumption is that a short sale is better for your credit than foreclosure. This may not actually be true.

Both will impact homeowners’ credit scores in a similar way because they typically involve significant delinquencies. Beyond that, it is difficult to say for certain how a short sale will impact your credit because there is no specific reporting code for short sales. This means that some of how your credit is affected is up to your lender’s discretion.

If you are behind on your mortgage and want to know more about your options, please call 206.694.6766 or email housingcounseling@solid-ground.org. There is no charge for Solid Ground services.

For more general information on this and related topics, attend our next free Mortgage Information & Enrollment Workshop on Wednesday, May 28th from 6-8pm at Solid Ground (1501 N 45th St, Seattle, WA 98103).