Do HOA Late Payments Affect Credit Score?

Q: Can HOA Late Payments Affect Credit Score?

To report delinquencies to credit bureaus, an HOA must become a member first. There are also costs and reporting requirements associated with the process. While many HOAs don't bother making such reports because they are small communities, there are some that take that extra step. As such, it is entirely possible for an HOA to report delinquencies, causing a dip in credit.

Q: Do HOA Late Payments Affect Credit Score?

To report delinquencies to credit bureaus, an HOA must become a member first. There are also costs and reporting requirements associated with the process. While many HOAs don't bother making such reports because they are small communities, there are some that take that extra step. As such, it is entirely possible for an HOA to report delinquencies, causing a dip in credit.

Q: How Much Can HOA Late Payments Affect Credit Score?

According to FICO, a person with an original credit score of 680 can drop between 575 and 595 after experiencing a foreclosure. This is equivalent to losing 85 to 105 points. A person with a 780 credit pre-foreclosure might experience a drop of 140 to 160 points, bringing it down between 620 and 640.

Believe it or not, HOA late payments can affect credit scores. When homeowners stop paying their dues or make late payments, their credit scores can take a hit. It can worsen if their missed payments become a lien and a full-blown foreclosure.

Can HOA Late Payments Affect Credit Scores?

Homeowners in an HOA have an obligation to pay regular dues to the association. They can face various potential consequences when they miss these payments or default on them altogether. These include late fees, interest charges, legal action, liens, and foreclosures. However, did you know that HOA debt also affects the owner’s credit?

An HOA must become a member first to report delinquencies to credit bureaus. The process also has costs and reporting requirements. While many HOAs don’t bother making such reports because they are small communities, some take that extra step. As such, an HOA can report delinquencies, causing a dip in credit.

Additionally, an HOA might refer the debt to a collection agency. When this happens, the collection agency is responsible for collecting the homeowners’ unpaid dues. The agency might report the debt to a credit reporting bureau as part of its process.

Although reporting delinquencies can be bothersome, some services nowadays allow HOAs to simplify the process. Some firms exist to offer credit-reporting services specifically to HOAs. When an HOA avails of such a service, it sends any delinquencies to the firm, which then makes the report to the bureau.

How Much Can HOA Late Payments Affect Credit Scores?

It is unclear how much of a hit a homeowner’s credit score might take due to late HOA payments. However, estimates show how much foreclosures can affect credit scores.

According to FICO, a person with an original credit score 680 can drop between 575 and 595 after experiencing a foreclosure. This is equivalent to losing 85 to 105 points. A person with a 780 credit pre-foreclosure might experience a drop of 140 to 160 points, bringing it down between 620 and 640.

Given this information, the decline largely hinges on the person’s original score. The drop is likely more severe if a homeowner has a high credit score. Therefore, it is safe to say that a foreclosure will likely bring down a person’s credit score by at least 100 points.

How Long Does HOA Late Payments Affect Credit Scores?

Credit scores can remain low for a while after taking a hit. A foreclosure, for instance, can stay on a person’s credit report for seven years. However, if the person remains current on all other debts and works to ensure their credit goes up, their score can increase in as little as two years.

Maintaining a high credit score is important as it can affect how homeowners secure financial assistance. Creditors and financial institutions review a person’s credit score and use it to approve or deny a loan. If a homeowner misses HOA payments and the association reports it to the credit bureau, they might find it more difficult to apply for credit or refinance their mortgage. Creditors might offer them a high interest rate or turn them down altogether.

Does the HOA Lien Affect My Credit?

Do liens go on your credit report? The short answer is yes. Not only can liens make it harder to sell a home, but they can hurt a person’s credit score.

HOA liens become public records, which means credit reporting bureaus can easily access them. They can then include this information on a person’s credit report and lower their credit score.

The same goes for HOA foreclosures. Because foreclosures are recorded in the public record, they can appear in a person’s credit history even without the HOA reporting them. This applies to both judicial and nonjudicial foreclosures.

How to Avoid HOA Dues Collection Issues

A homeowner’s obligation to pay dues to the HOA is simple and straightforward. If homeowners remain up-to-date on all their payments, credit scores don’t have to get involved. Similarly, an HOA can avoid collection issues by implementing a few strategies.

For Homeowners

Set Up a Notification. The easiest way to never miss a deadline is to set up a notification. Even something as simple as a phone alarm or calendar alert can help homeowners avoid late payments.
Seek Other Methods. If the HOA’s current payment methods are insufficient, homeowners can request the board to accommodate a new one. Many associations today offer electronic methods of payment for convenience.
Ask for a Payment Plan. Financial struggles are normal, especially during hard economic times. Homeowners can give themselves some breathing room by asking their HOA for a payment plan to settle their dues.

For HOAs

Offer Multiple Payment Methods. An HOA should not be stuck in the past. With the advent of technology, HOAs should offer payment methods other than traditional checks and cash. Partnering with a bank or an HOA management company can significantly help by allowing ACH payments, online transfers, credit, and debit. Of course, it is essential to enable traditional payment methods to accommodate older, less tech-savvy residents.
Enable Notifications. An HOA can save a lot of trouble from missed payments by notifying homeowners beforehand. Written notices are required for most HOAs, but it is also a good idea to set up electronic notifications. Use communication channels like email, text messaging, and even website announcements.
Provide Constant Updates. An HOA should consistently keep homeowners in the loop about their account balances. This way, homeowners know when they are in the clear or when they need to settle unpaid dues. Some may have genuinely just forgotten about their outstanding debts.
Enforce Collection Policy. A collection policy exists for a reason. An HOA should ensure that it enforces this policy fairly and consistently while allowing room for consideration if the case requires it.

HOA Late Payments Affect Credit Scores in a Big Way

Reporting delinquencies is one way an HOA can ensure homeowners pay their dues on time. While many HOAs don’t bother due to the troublesome nature of the process, it is a less aggressive enforcement strategy than foreclosures. That said, homeowners should understand that their credit scores can take a hit when they don’t meet their financial obligations. As such, both parties should take the necessary steps to remain in good standing.

Clark Simson Miller offers HOA management services to homeowners associations and condominiums, including collection services. Call us today at 865.315.7505 or contact us online to learn more!

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