What If I Am Late in Paying My Home Equity Loan?
When you take out a home equity loan, you agree to make monthly payments on the debt. If you miss a payment or make a payment late, you could incur penalty fees, and the late payment could harm your credit score. Over the long term, high numbers of late payments could make it harder for you to obtain credit in the future.
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Grace Period
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When you have a home equity loan, your loan payment date falls on the same day each month, unless that day falls on the weekend, in which case the lender normally requires you to make your payment on the next business day. However, while you are supposed to pay the loan on the due date, most loans include a clause giving you a 10-day grace period. As long as you pay your loan within the 10 days immediately following the due date, the lender does not typically classify the payment as late.
Penalty
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If you fail to make your loan payment before the end of the payment grace period, you normally have to pay a penalty. This fee takes the form of a flat fee, although some lenders may charge some form of an interest penalty. If you have a home equity line of credit, your lender may freeze your line so you cannot access it. When you eventually make your payment, your lender should re-allow you access to the credit line.
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Credit Score
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Lenders report late payments to the national credit reporting agencies. However, credit bureaus gather data on only those payments that are a whole billing cycle late. Typically, billing cycles last for 30 days, so a late payment impacts your credit score only if it involves missing your due date by a month. Credit bureaus also keep track of the number of times you miss a payment by 60, 90 or 120 days, and every late pay has a negative impact on your credit score.
Considerations
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Late payments remain on your credit report even after you have paid the amount due. When you apply for new credit, lenders look at your credit report as a whole, rather than just your present credit score. Lenders can decline applications for new credit on the basis of high numbers of late payments on home equity loans or other types of credit products. However, one late payment on a home equity loan usually has a minor impact on your credit score as long as you settle the debt within a short time.
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References
- Experian: Day Late Payment Probably Won't Show on Credit Report; October 2007
- Experian: Late Payment History Will Remain for a Time After Debt is Paid; April 2009
- Federal Trade Commission: Knee Deep in Debt; February 2011
- The Federal Reserve Board: What You Should Know About Home Equity Lines of Credit; August 2009
