We recently had a question from someone considering a short sale for their house.   This person is not eligible for a loan modification and their lender recommended a short sale.  When they put the house on the market, they are considering making just partial payments while they try to sell it.

The question is: DOES MAKING A PARTIAL PAYMENT ON THE MORTGAGE HURT MY CREDIT SCORE?

The answer is: IT COULD.

Usually a late payment on any account gets reported on the credit report when a monthly payment has been skipped.  This shows up as a 30 day late payment.   NOTE: A payment that is past the due date by a few days or even two weeks is generally NOT reported to the credit bureaus as late.

Sometimes a partial payment is not considered a full payment by the company receiving it and they report it as a late on the credit report.  If two months go by with just a partial payment, not paying the full “amount due” on the statement, it CAN show up as two consecutive late payments and may be reported as two 30 day lates or a 30 and a 60 day late.  It just depends on how the mortgage company decides to report it to the credit bureaus. 

Another thing to consider is that it is very common for loan servicing companies and lenders NOT to accept partial payments.  Because anything less than a full payment amount can be considered as contractually not serving the obligation, the partial payment may be returned to the sender or it may be held as “pending”, waiting for the rest of the payment.   Additionally, when the lender receives a partial payment, they decide what to apply it to.  They may see the insurance and taxes as an important item to preserve their collateral, the house, and decide to put the partial payment into escrow, applying nothing toward the loan balance or interest.   An unaccepted partial payment will result in a late payment on the credit report.

Payment history is the number one factor in credit scores.  One late payment, when the rest of the credit report is unblemished, can cause a dramatic drop in credit scores.  So before you stop payments or send in partial payments, communicate with your lender.  Be sure to look at all options that help your financial situation now, and into the future.

You can read more about Short Sales and their impact on credit scores here.  The Federal Trade Commission also has consumer information available on this topic.