It doesn’t matter what day you pay your mortgage bill as long as it’s on time or falls within your lender’s grace period. But the graciousness ends if you still haven’t paid by the following month’s due date. You would then be two months late, and that would likely hurt your credit score.
Dear Keeping Score,
Does paying on any date between the 1st and 16th for a house payment, due on the 1st, make any difference to the credit score and reporting process? –David
Dear David,The short answer to your question is no, as long as the payment is not already late or short from the month before.
I will say that the industry-standard grace period for most mortgage lenders is 15 days, not 16. So, I would suggest you double-check on that, especially when it comes to being late. This is not because you will be reported late to the credit bureaus, though; it’s because you are likely to be hit with a late fee from your lender if you are late, even by as little as one day.
A grace period is just that: an extension of the time you have to make your mortgage payment. It does not change your actual due date. Confused? So are many others!
How grace periods work
Look at it this way – your payment is due and payable on the first of the month. But the bank is gracious and allows you 15 days to get the payment through the mail and their processing system and have it posted. Yes, most of this is electronic now, but the tradition of a grace period lives on in the minds and cold little hearts of bankers today.
No matter what the grace period, your payment is still really due on the first. Why does this matter? It matters if you miss a payment or send in a short payment. Once you are late, the graciousness ends and you have a hard due date of the first of the next month. So, if you miss January’s payment on the 15th, the next payment is due in Feb. 1. If you miss paying it on the first, you are two months late.
Many don’t realize this change and end up crossing the 60-day or even 90-day past due date without realizing it. Not only will this seriously ding your credit score, often at the 90-day mark a lender will want the entire three-month arrearage paid at once to bring the loan current. And, for many, coming up with three months of mortgage payments at once can be a real problem since it was being short of cash that made them late in the first place.
The late fee charged by a mortgage servicer is not a standard amount, but is usually a percentage of your payment. The exact percentage will be spelled out in your mortgage agreement. Generally, though, this percentage ranges from 3-6 percent, with 4 or 5 percent being the norm. This means it is substantially more than the $36 late fee that is the average for late credit card payments, for instance. A 5 percent late fee for a mortgage payment of $1,500 is $75.
See related: Don’t wait until due date to pay first card bill
Mortgage vs. credit card: How credit reporting differences affect your score
It’s also worth noting two other differences between mortgages and credit cards. The first is the way the interest is calculated. Interest for a credit card balance is calculated daily, whereas mortgage interest is calculated monthly. This means you will pay the same amount in interest on your mortgage whether you pay your bill on the 1st or the 15th (or 16th if you are correct and your lender gives you through the 16th to make your payment).
Second, if you pay a credit card before its due date, you may help your score. This is because the payment will reduce the amount of debt you have outstanding on the card, which could make a difference in the component of your score that looks at credit utilization. This component accounts for 30 percent of your score.
As for credit reporting, mortgage lenders will not report late payments until the bill is 30 days or more past due. Paying early won’t earn you extra points in the credit reporting world, either. But a mistake may cost you big. Depending on what else is in your file, paying late could result in a substantial drop in your credit score.
A mortgage counts as an installment loan. This adds a different type of credit to your scoring profile as the payment for an installment loan is typically a fixed payment due on the same day each month. But a credit card payment can be flexible in amount and therefore requires less discipline to keep current. Mix of credit (types of accounts) makes up 10 percent of your score, while on-time payments weigh in at a hefty 35 percent.
See related: How late payments get reported to the credit bureaus
Pay your mortgage on the first of the month
I will say that in general, it is best to pay your mortgage when it is due, which is the first of the month. This is just sound financial practice.
I like it because it allows for slip-ups and unexpected delays such as a memory lapse, returned payment for the wrong postage or a shortage in the checking account the payment was supposed to come out of. You know what they say – if it can go wrong, it will!
Building a spending plan that takes into account all income and all expenses and incorporating when bills are due will make your life easier. If you stick to your plan, your credit score will reflect these best practices over time.
Remember to keep track of your score!