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Mistakes, snafus, grievous errors -- we've all made them. But Mom's advice to "say sorry" only helps so much when you're talking about costly mistakes that may harm your credit. And with financial institutions on life support, you can't expect much leniency.
So when you've missed a payment, you need to go beyond "sorry" and straight to damage control. Here's some straight talk about what to do when:
1. You miss a credit card payment.
- Call the credit card company for a heart-to-heart. Okay, so Mom was on to something. You do want to sound contrite, but an apology is just a sugarcoated segue to your real point: How can the credit card company work with you to make this right? If you have a history of on-time payments, they may waive your late fee, agree to keep your interest rate at its current low, or minimize the damage to your credit report.
- Survey the damage. You called your credit card company and they agreed to waive your late fee. Time for a victory lap, right? Not so fast. Late payments are more costly than ever before, and not just because of hefty late fees. Your interest rate on the card in question may have soared as a result of this one late payment, but you may be surprised to learn that the other credit cards you carry may have been affected as well. For example, if you're carrying a card that allows no payments for 12 months, that one late payment on another card could have opted you out of your grace period and right into repayment.
- Arrange automatic bill pay for the minimum. Once you've dealt with your current mistake, you want to make sure you're never late again. Your credit card company's good graces don't include repeat offenders, so do ensure that the minimum on your bill is always paid on time by using bill pay. (If you arrange bill pay for the minimum, don't let that lull you into complacency. Check your bill regularly, make extra payments, and whittle down the balance.)
2. You miss a mortgage payment.
- Immediately call your mortgage company. You need to explain your situation and see what alternative payment arrangements your lender can arrange. Depending on the circumstances, your lender may be willing to accept partial payments temporarily, or may allow you to make up the missed payment in installments. Whatever you do, do not ignore your lender's communications; your lack of response will only make things worse.
- Investigate refinancing. Ask your company if you are eligible to refinance your loan or lengthen the term of your mortgage loan to allow you to keep your home.
- Consider selling. Don't become so attached to your home that you let it become your ruin. While most folks would consider selling as a last resort, I'd urge anyone on shaky financial footing with their mortgage lender to think about selling sooner rather than later. Making the decision to sell puts you back in the driver's seat; having your house foreclosed on, by contrast, puts the bank in charge and destroys your credit rating. Depending on your situation (e.g., if you're officially in default), you may need to get approval from your mortgage company for a pre-foreclosure sale.
- Ask about deed-in-lieu-of-foreclosure options. Your lender may agree to simply take your deed and let you walk away from the debt, with potentially much less damage to your credit than foreclosure. Special terms may need to be met first (i.e., the borrower was unsuccessful in selling the home, the borrower does not have another mortgage, etc.), so make sure you know your lender's requirements for exercising this option.
The lesson boils down to one major point: Talk to your lender. Whether you've hit a financial rough spot or the payment just slipped your mind, confronting the problem right away can help you weather it with your credit relatively intact.
For more on handling your credit, read: