If you miss mortgage payments, is it going to affect your credit score? If it does, what will the affect be?
There are two ways in which you may miss a mortgage repayment. These are:
1) Unplanned missed payments, where you just don’t make a payment and leave the building society to chase you to find their cash.
2) Planned payment holidays, probably allowed once each year, depending on the lender you have borrowed cash from.
With both of these the effects of missing your mortgage payment might be totally different on your credit rating.
For the first, an unplanned missed payment (or at least you have not agreed it with your building society before your missed the payment) your building society is going to record it on your credit rating as a missed payment.
But if you have arranged the missed repayment as a payment holiday in advance with your bank, then normally this will not be reported on your credit rating, which will show that you are correctly making agreed repayments - which you are (you and your bank have agreed the missed repayment in advance).
So why do these affect your credit score?
Your credit rating is your history of whether you are correctly managing your repayments, which create your credit score, which is an overall indication of whether you are potential to repay future debts.
So, if you are seen to be struggling with your repayments, then this is going to reflect negatively on your rating and lower your rating, whereas if you arrange a mortgage holiday with your lender, then this is not having the same effects and does not reflect on the score. Your reputation remains unaffected.
What is the problem with lowering your credit rating?
If during the course of your mortgage your credit rating falls, then this might not seem to be a problem. After all, you already have your hands on the mortgage, why do you still need to prove yourself? It is not as although the lender regularly reviews your application, is it?
Well, in a way, it does. Every few years your present mortgage becomes more expensive and you perhaps want to remortgage to a cheap mortgage product by the same building society, or even a new building society. In this case, the building society reviews your credit history before making you an offer and setting your future repayment rates. This can mean that if your credit rating is showing that you have been badly managing your loans, you are unable to remortgage, or at the very least unable to remortgage so cheaply.
What are the other problems?
It is not just any future remortgage that is affected if you start defaulting on payments. If over the next few years you wish to extend any other forms of credit, this can be blocked. For instance, car loan, new credit cards, bank overdraft and so on.
Habitually not there mortgage repayments can affect your ability to get hold of money cheaply in all sorts of ways and is definitely best avoided! If you are struggling with repayments, get help from your bank.
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