credit

Ex missed mortgage payment, hurt my credit

Don TaylorDear Dr. Don,
A divorce decree required my former husband to refinance the mortgage on our home and take my name off the note. But in the process, he failed to keep current on the mortgage, apparently believing it would be refinanced before a 30-day grace period was up. After his foul, my credit score, which previously stood around 815, now includes the damaging 30-day late payment. The divorce decree says I am not responsible for the house payments, but the mortgage company reported me anyway.

How much more interest will I have to pay on a mortgage because of the damage to my credit score?

Thanks,
-- Trish Trashed

Dear Trish,
The lender wasn't party to your divorce decree. Since your name remained on the note, you also remained responsible for the payment. Let's face it, ex-husbands make mistakes. That's what led many of them to be divorced in the first place. Not an excuse, just fact.

Interest rates are determined partly by the risk perceived by the lender that you won't repay your loan. Yes, a lower credit score will result in a higher interest rate.

Ironically, consumers with higher credit scores take a bigger hit to their credit score when they make a "credit mistake." For someone with a 780 credit score, FICO estimates that a 30-day late payment will reduce their credit score by about 100 points.

What will that drop in your credit score cost you through a higher rate of interest? The myFICO.com website shows differences in annual percentage rates for different credit scores. From what I see on a 30-year fixed-rate mortgage, your rate would be about 0.25 percent higher after the hit to your credit score. Interestingly, the difference on a five-year auto loan could be closer to an increase of 1.5 percent.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
Product Rate Change Last week
Balance Transfer Cards 15.66%  0.01 15.67%
Cash Back Cards 16.36% --0.00 16.36%
Low Interest Cards 10.87% --0.00 10.87%
 
Search
advertisement
CREDIT CARD WEEKLY NEWSLETTER

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

advertisement

Blog

Jeanine Skowronski

Smartwatch app answers: Which card?

A smartwatch app from Wallaby Financial can recommend what credit card to use based on rewards, balances and credit utilization.  ... Read more

Partner Center
advertisement

Connect with us