Does Paying Your Mortgage During the Grace Period Affect Your Credit?

To keep your credit score high, you need to make your mortgage payment on time every month. However, things come up, and sometimes you may need to pay your mortgage a few days after the due date. Most mortgage lenders give you a grace period if you are late with your payment, which is good news. But what happens to your credit if you pay during the grace period? Let’s find out.

What is a Mortgage Grace Period?

A mortgage grace period is the amount of time after your due date that you can pay without being charged late fees or having your credit report marked as late. This extra time gives you a safety net in case you can’t pay by the due date because of something out of your control.

The most common mortgage grace period is 15 days. If your mortgage is due on the 1st of the month, you usually have until the 15th to pay it off without being charged a late fee. Depending on your mortgage lender and loan terms, the grace period could be shorter or longer. Check your paperwork to see how many days of grace you have.

Paying During the Grace Period

Making your mortgage payment during the grace period while not ideal, will not directly harm your credit score. As long as your payment is received before the grace period expires, the lender cannot report the payment as late to the credit bureaus. You also avoid any late fees.

So in short, paying your mortgage during the grace period does not negatively impact your credit score. As far as the credit bureaus are concerned, the payment is on time.

The Downsides of Using the Grace Period

It won’t hurt your credit to pay during the grace period, but you shouldn’t do it all the time. Here are some reasons why:

• Risk of Exceeding the Grace Period: If your payment gets delayed in the mail or takes a few extra days to process, you could wind up going beyond the grace period, resulting in late fees and credit damage.

• Loss of Interest: Making payments past the due date means you are holding onto funds longer and losing potential interest earnings.

• Indicates Disorganization: Frequently using the grace period could signal to the lender that you are disorganized or struggling financially.

• Can Become a Slippery Slope: While the occasional grace period payment is fine, it can easily turn into a pattern that leads to true delinquency.

How Late Payments Affect Your Credit

While paying during the grace period is okay, a payment that is 30 days or more past the due date can seriously damage your credit. Here’s what happens when mortgage payments are late:

• At 30 days past due, the lender can report the delinquency to the credit bureaus. This can cause your credit score to drop significantly.

• At 60 days past due, the negative impact on your credit score increases. Most lenders will start rigorous collections efforts.

• At 90 days late, foreclosure becomes a real possibility. Your credit score can plummet by over 100 points.

• A foreclosure can stay on your credit report for up to 7 years and make it very difficult to qualify for future loans.

Tips for On-Time Payments

To avoid credit damage and keep your mortgage in good standing, here are some tips:

• Pay on or before the official due date whenever possible.

• Set up automatic payments through your lender to ensure payments are always on time.

• Review payment dates and grace periods so you know how long you have.

• Contact your lender immediately if you anticipate an issue making a payment.

• Take advantage of loan modification programs if you are facing financial hardship.

While the grace period gives you some wiggle room, it’s always best to pay your mortgage on time. Protect your credit score and your good standing with the lender by making payments by the due date. But in a pinch, paying within the grace period is an option that spares your credit score. Just be sure to get back on track the following month.