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Credit Score Could Drop by 200 Points if Mortgage Is Unpaid

By Sally Maison
Published: Friday, October 30th, 2009

A recently published study by the First American CoreLogic reveals that almost a third of South Florida homes are underwater. This means that many homeowners owe more than their home’s worth. The foreclosure crisis in the area, deemed by most experts as something that is far from over, is the main reason behind depressed real estate prices. Homeowners say that their devalued homes discourage them to continue paying their mortgages. But industry specialists warn consumers that if their payment does not reach their lender on time, it could make their credit score drop by as much as 200 points. Things could get worse for consumers who have late payments other than their mortgage.

Credit Score Could Drop by 200 Points if Mortgage Is UnpaidSpecialists say, whether they like it or not, the only option left for consumers whose homes are underwater is to keep paying their lenders back. This is because mortgage lenders report to the credit bureaus any late or delinquent payment made by their debtors. They usually report missed payments a month after they have been committed.

However, late payments do not only affect consumer rating. Lenders also take other actions to make sure that their debtors pay them back on time. This includes raising interest rates, shutting off a credit card entirely, and lowering personal credit limit.

Experts also remind consumers how seriously a low credit score affects interest rates. Generally, a FICO score of 720 to 850 will get a 6.78 percent interest on a 30-year fixed mortgage rate. If a consumer’s score glides down from 720 to 719, he is most likely to be charged with a 6.91 percent interest rate for the same loan. Meanwhile, a consumer whose score drops from 720 to 520 is likely to be charged with a 9.29 percent interest rate when he applies for refinancing. On a $300,000 worth of loan, a difference of 2.51 percent means a homeowner will have to pay $75,300 more.

But specialists warn that such computations by Fair Isaac Company were released prior to recession, and consumers can very well expect that things have gone for the worse. They tell consumers that payment history makes up 35 percent of their credit score, advising them to make the minimum payment within 30 days of the due date. Consumers are told that they should not miss any due date if possible. Specialists say payments that were made 30 days late can hurt a credit score by 100 points. Consumers who take longer to pay could see their ratings drop by 200 points.
Homeowners are advised to contact their lenders if they cannot meet a payment date to keep their rating from going down.

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