What’s Worse For Your Credit Score: Hard Inquiries or Late Payments?

late payments credit score

The condition of your credit is, without a doubt, a big deal if you plan to apply for a home loan any time in the near future. Mortgage lenders have strict qualification standards when it comes to your credit reports and credit scores. If your credit reports contain red flags, qualifying for a mortgage might not be as easy as you had hoped.

Anything that impacts your credit scores may impact your ability to qualify for a mortgage. Both hard inquiries and late payments fall into this category.

The good news for you, if you ever become a borrower, is that you do not need to have perfect credit to qualify for a mortgage. That is a myth. Yet there are certain credit management mistakes that might make it more difficult or even impossible for you to qualify for a new home loan. Of course, not all credit mistakes are equal. Some mistakes are worse than others.

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This is where credit management can become a little tricky. If you are consciously trying to improve or protect your credit in anticipation of an upcoming mortgage application, it is important to make sure that you understand which factors hold a lot of influence over your credit scores and which factors are not all that important.

Late Payments vs. Hard Inquiries

There are dozens of factors that can influence your credit scores, among them late payments and credit inquiries, also referred to as “hard” inquiries. Yet, despite the fact that late payments are three times more important in terms of your credit score calculation, a lot of people choose to obsess over inquiries. A Google search of the term “credit inquiries” yields over 113 million results. The term “late payments” yields a little over 18 million.

How Late Payments and Hard Inquiries Impact Your Ability to Qualify for a Mortgage

Anything that impacts your credit scores may impact your ability to qualify for a mortgage. Both hard inquiries and late payments fall into this category. If too many hard inquiries show up on your credit reports, especially credit card-related inquiries, your credit scores could go down. New late payments on your credit reports can damage your credit scores as well, but much more significantly.

FICO and VantageScore credit scores, the types of scores used in the mortgage industry, are designed to consider both hard inquiries and late payments in the calculation of your credit scores. Hard inquiries may influence about one-tenth of the points in your credit scores, the lowest contribution of any category of items. Late payments (or the lack of late payments), on the other hand, contribute about one-third of the points in your credit scores.

A single hard inquiry is going to have little to no impact on your credit scores. By contrast, a single new late payment could drop your scores considerably.

Here is another way to look at things: A single hard inquiry is going to have little to no impact on your credit scores. By contrast, a single new late payment could drop your scores considerably. It would be difficult to disqualify yourself from mortgage approval because of the presence of a new inquiry on your credit reports. However, a new late payment could easily have such a negative credit score impact that it would make qualifying for a mortgage more difficult or even impossible.

It is also worth noting that hard inquiries have a much shorter shelf life than late payments in terms of credit reporting. Most hard inquiries will remain on your credit reports for two years, but will only be considered in your credit score calculation for their first 12 months. On the other hand, late payments can remain on your reports for up to seven years and may be considered in your score calculation the entire time.

Keeping It In Perspective

Of course, hard inquiries matter, and you should not allow your credit reports to be pulled excessively, especially whenever you are preparing to purchase a home. However, it is also important to remember that instead of fixating on less important credit issues, you will probably be better served to fix your attention on factors that really matter, such as never missing payments on anything.