If you miss mortgage repayments, is it going to affect your credit rating? If it does, what will the affect be?
There are two ways in which you may miss a mortgage payment. These are:
1) Unplanned missed repayments, where you just don’t make a repayment and leave the bank to chase you to find their money.
2) Planned repayment holidays, maybe allowed once each year, depending on the bank you have borrowed cash from.
With both of these the effects of missing your mortgage repayment can be totally different on your credit score.
For the first, an unplanned missed payment (or at least you have not agreed it with your building society before your missed the repayment) your lender is going to record it on your credit rating as a missed payment.
But if you have arranged the missed payment as a repayment holiday in advance with your building society, 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 payment 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 rating, which is an overall indication of whether you are prospective 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 score, whereas if you arrange a mortgage holiday with your building society, 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 score 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 bank frequently reviews your application, is it?
Well, in a way, it does. Every few years your current mortgage becomes more expensive and you possibly want to remortgage to a cheap mortgage product by the same lender, or even a new bank. In this case, the lender reviews your credit history before making you an offer and setting your future repayment rates. This might 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 only any future remortgage that is affected if you start defaulting on payments. If more than the next few years you wish to extend any other forms of credit, this might be blocked. Such as, car loan, new credit cards, lender overdraft and so on.
Habitually absent mortgage repayments can affect your ability to get hold of cash cheaply in all sorts of ways and is unquestionably best avoided! If you are struggling with repayments, get help from your lender.
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