Had a mortgage declined due to a late payment? Find out how Haysto could help you when others can’t.
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Life happens, and sometimes, late payments are unavoidable. But whilst they can affect your credit score, a late payment shouldn’t stop you from getting a mortgage.
If you have a history of late payments on your credit record, read on to find out how we could make your mortgage possible when others can’t.
Missed payments can happen to anyone. You get sick, lose your job, or have an unexpected expense pop up and suddenly that credit card or loan payment you’ve dutifully been making every month gets overlooked. Now you’re worried – can you still get approved for a new loan or line of credit if you have missed payments on your record?
The short answer is yes you may still be able to qualify for a new loan even with missed payments in your recent past. However it will likely come with higher interest rates and more stringent loan terms. The good news is there are steps you can take to improve your chances of approval and get your finances back on track.
In this article, we’ll cover everything you need to know about getting a new loan after missed payments including
- What lenders look for when you have missed payments
- How missed payments impact your credit score
- Minimum credit score requirements for loan approval
- Types of loans available after missed payments
- Tips for improving your chances of loan approval
- Rebuilding your credit after missed payments
What Lenders Look For When Reviewing Missed Payments
When you apply for a new loan, lenders will carefully review your credit report and look for any late payments, collections accounts, or other negative information. A few isolated 30-day late payments may not raise too many red flags. However, 60-day late payments, accounts in collections, or recent missed payments will give lenders pause.
Here are some of the factors lenders consider when reviewing your application with missed payments:
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Number of missed payments: The more missed payments you have, the bigger the red flag for lenders. Even one or two can impact your eligibility if very recent.
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Recency of missed payments: More recent missed payments are seen as more concerning than older ones. Many lenders may overlook missed payments older than 2 years.
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Type of accounts: Missed payments on installment loans and mortgages are seen as more serious than missed credit card payments.
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Collections: Outstanding collections accounts from missed payments can severely hurt your chances.
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Explanations: Lenders may ask for letters explaining the circumstances of your missed payments. Valid reasons like medical problems or job loss can help.
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Your credit history: Applicants with longer credit history and some on-time payments can offset the impact of a few missed payments.
How Missed Payments Affect Your Credit Scores
Missed payments can seriously drag down your credit scores, especially if you have missed several payments across multiple accounts. Here are some of the ways missed payments impact your FICO and VantageScore credit scores:
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Payment history: Payment history makes up 35% of your FICO score. Just one 30-day late payment can drop your scores by 60-110 points.
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Credit utilization: As unpaid balances accumulate, your credit utilization ratio increases, costing you points.
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Negative information: Defaulted accounts and collections from missed payments can remain on your reports for up to 7 years.
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Credit age: Missed payments can lead to account closures, decreasing the average age of your credit history.
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New credit applications: Applying for new credit after missed payments signals greater risk to lenders.
The good news is you can start rebuilding your credit right away by consistently making on-time payments. Your scores will gradually improve over time as negative information falls off your reports.
Minimum Credit Scores Needed for Loan Approval
Each lender has their own minimum credit score requirements for approval. The lowest scores typically accepted for unsecured personal loans are:
- FICO score of 620
- VantageScore of 640
Applicants with scores below these thresholds will have a very difficult time getting approved. Those with scores in the fair range (580-669) may only qualify for loans with less favorable terms like low loan amounts, very high APRs, or secured collateral.
For the best terms and rates, you’ll need good to excellent credit:
- FICO score of 670+
- VantageScore of 700+
The higher your credit score, the more loan options will be available to you, even with missed payments on your record. Focus on rebuilding your credit as much as possible before applying.
Types of Loans Available After Missed Payments
Depending on the severity of your missed payments, here are some loan options that may still be available:
Credit Builder Loans
These installment loans are designed for consumers with poor credit or limited credit history. You make monthly payments, which are deposited into a locked savings account. Once paid off, the loan amount is released to you along with the payments you’ve made.
Secured Personal Loans
For these loans, you provide collateral like a vehicle title, savings account, or certificate of deposit as security for repayment. This reduces the lender’s risk so you may qualify with bad credit.
Co-signer Loans
Adding a co-signer with good credit can improve your chances of approval substantially. The co-signer becomes equally responsible for repaying the loan.
Payday Alternative Loans
Offered by some credit unions, these small loans up to $2,000 can provide emergency cash if you have bad credit. The application process is simple but interest rates are higher.
FHA Loans
These government-backed home and auto loans are more flexible with credit requirements. You may qualify with a 580 FICO score or higher and some missed payments.
Subprime Lenders
Specialized subprime lenders offer loans to higher risk applicants, but they come with unfavorable rates and terms. This option should be a last resort.
Tips for Improving Your Chances of Loan Approval
If your credit is less than ideal, here are some tips that can help boost your odds of getting approved for a personal loan:
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Check your credit reports and dispute any errors – this can improve your score.
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Pay down balances below 30% of the credit limit on revolving accounts.
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Become an authorized user on someone else’s account to add positive history.
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Avoid new credit applications in the months preceding your loan application.
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Provide documentation to verify income, explain special circumstances, etc.
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Consider a secured loan or co-signer if you have poor credit.
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Apply with lenders who offer bad credit loan programs.
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Improve your debt-to-income ratio by paying down other debts.
With some extra planning and preparation, you can set your application up for success, even with the challenge of missed payments in your history.
Rebuilding Your Credit After Missed Payments
The key to rebuilding strong credit after missed payments is demonstrating you’ve changed your financial habits for the better. Here are some top tips for credit repair after missed payments:
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Make all loan, credit card, and bill payments on time each month. Setting up autopay can help.
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Pay down credit card and revolving account balances. Get balances well below 30% of the credit limit.
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Limit new credit applications to only essential needs. Too many can indicate higher risk.
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Monitor your credit reports and scores monthly to check their progress. Dispute any errors.
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Consider debt management, credit counseling, or consolidation programs if you are struggling with high balances and payments.
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Write goodwill letters requesting late payments be removed after 12 months of on-time payments.
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Let previously missed accounts continue aging on your reports as positive history rather than closing them.
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Practice excellent money management by budgeting, saving, and prioritizing financial goals.
With diligence and patience, your credit can fully recover from those bumps in the road caused by past missed payments. Stay optimistic and focused, and your improved scores will open up more affordable loan options again in the future.
The Bottom Line
Missed payments can make getting approved for a new loan more challenging but not necessarily impossible. While your loan options may be limited initially, there are still lenders willing to work with you. With a strategic credit rebuilding plan, you can bounce back from those missed payments and reestablish your credit health over time.
What happens if you miss a mortgage payment?
A single missed mortgage payment may not be a disaster. Your credit score might be affected, but the right thing to do is talk to your lender so they know and understand your situation. Dont ignore it!
Once youve told your lender, youll have a grace period of one to two weeks to make the payment. A late fee will be added to the payment, and youll need to make sure you pay it along with the usual mortgage payment.
If you dont make your payments after 90 days, your account can be marked as defaulted. At this point, talks of repossession might happen. Repossession is always a last resort, so therell be chances to discuss options and get financial advice before it comes to that.
Your mortgage lender would prefer you to make your payments rather than take your home away, so they will likely offer advice and solutions. Let your lender know as soon as possible if you think youll struggle to repay.
Late payment Vs missed payment: what’s the difference?
A late payment is exactly that: a payment you did make, just not on time. A missed payment is one you haven’t yet made. A late payment stays on your credit record for six years but must be more than 30 days overdue before it can be registered.
For example, let’s say your minimum credit card payment was due on the 7th of the month, but it wasn’t paid until the 14th, so it was seven days late. This wouldn’t be marked on your credit record because it was paid within the 30-day billing cycle. But, if that payment wasn’t settled until the 10th of the following month, that’s over 30 days, and it can be registered as ‘late’. If it remains unpaid, it will be classed as ‘missed’.
A missed payment means your credit card account will fall into arrears for that amount. If you miss multiple payments (typically no less than three), your account can eventually be closed and registered as a default.
Can I Get a Home Loan w/ a Late Payment?
FAQ
Can you get a loan with missed payments?
The odd late or missed payment against something unsecured, such as an overdraft, is unlikely to have a huge impact on some lenders’ decision to loan you money. However, if you already have a record of a mortgage with late payments, you can expect to have a much harder time finding a lender.
Can you get approved with late payments?
Can your mortgage be declined due to a late payment? Potentially, yes. But this depends on the number of late payments on your Credit Report, when they occurred, how much they were for, and whether the late payment was for a secured debt, like a mortgage, or an unsecured debt, like a credit card or overdraft.
Can you get a loan if you are in arrears?
A missed or partial payment may prevent your credit application from being approved. You will receive phone calls and messages from the credit provider, its collection agents and attorneys. If you do not settle the arrears, you could have a judgment granted against you.
How many 30-day lates can you have on an FHA loan?
Furthermore, FHA loan rules in HUD 4000.1 say that the borrower must not have more than two 30-day late mortgage payments or installment loan payments in the last 24 months.