Jessica
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Community Mentor

How foreclosure affects your credit score

When you fail to pay back the mortgage and you're not offered a workout plan to continue payments, chances are that the property may be foreclosed. Foreclosure involves the lender taking away your property and selling it off at an auction in order to recover the unpaid mortgage debt.

However, if the market isn't good enough and the sale price comes out to be lower than the balance you owe, then you may have to pay the deficiency (difference between the sale price and what you owe).

How does foreclosure affect credit?

When it comes to foreclosure, most people are concerned about how foreclosure affects on credit rating. This is because until and unless one is able to rebuild credit after foreclosure, he will not be able to get credit/loans at better rates of interest. If the financial markets are not good enough, one may not even be approved for any type of credit or mortgage.

Moreover, if your credit isn't good, you won't be able to secure a job in case you're looking for a new one. Therefore, prior to a foreclosure, you should be aware of how foreclosure affects your credit score.

Foreclosure affects your credit score by 250 points. That is, if you have a credit score of 680, it will drop down to 430. So, it's better to avoid a foreclosure and request the lender for a loss mitigation plan so that you're able to keep the home or if at all you can't keep the home, then at least see that your credit doesn't get a big hit.

Foreclosure: How long will it affect credit?

Like any other negative item, a foreclosure stays on your credit report for 7 years. However, foreclosure affects your credit score predominantly for the first 2 years. But, once you start rebuilding your credit, it gets better with time, though it'll take almost 2-4 years to get a mortgage after foreclosure, that too at comparatively better rates of interest.

How can you repair credit after foreclosure?

Here are 3 tips to help you repair credit after foreclosure.
  • Prepare a budget: Look at the way you spend your money. Plan a budget and try to follow it. Understand why your home was foreclosed. If there's anything that you could have avoided, try to fix it now. Track if you are spending extra and adjust your budget accordingly. Use the Simple Budgeting tool and prepare a well-planned budget.

  • Pay your bills on time: Keep paying your bills and debts in time and make sure your creditors report them to the credit bureaus. If required, take help of a credit counselor or avail debt management plan in order to reduce your debt burden. This is because high debt load will affect your credit score and bring it down. Don't ignore small expenses as otherwise they can be sent for collections.

  • Get a credit card: You can apply for credit cards and use it to make small purchases. But pay off the balance in full every month. This will reflect that you can manage credit responsibly thereby borrowing only what you can afford and paying it back in time. However, go for a credit card only if you have adjusted your expenses.
Even if foreclosure affects on credit rating, you can manage your finances wisely and rebuild credit after foreclosure. All you need is to stick to your budget, make debt payments in time and avoid overspending.

 
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Mini Profile  ksndi362636




Joined: 16 May 2006
Posts: 7

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Post     Post subject: credit effects of foreclosure

If you were quit claimed on to a property and are not on the loan. If the property get foreclosed on will this effect your credit? Will a forecoseure show up on your credit report? And how do you find out if the other person on the title who does carry the loan has missed payments and may be near a default?
Mini Profile  adonis

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Post     Post subject: RE

Yes, it will affect your credit score. It will stay on your credit report for 10yrs and will always decrease your score. The older the foreclosure becomes with rebuilt credit history the less amount of impact it will play on your score.

Adonis

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Mini Profile  ksndi362636




Joined: 16 May 2006
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Post     Post subject:

Can I quit claim my self off it before it gets to the foreclosure. I was quit claimed on to a investment property by my ex, and I think he has been missing payments, he wont tell me, how can i find out?
Mini Profile  adonis

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Post     Post subject: RE

My mistake ksndi, I got your 1st question wrong. If the loan is not on your name then You dont have to worry too much about that as he has to pay all the payments and if he is not paying it then only his credit will be affected not yours.

After foreclosure, you will only loose the house. It will wont affect your credit either.

I apolozise for my mistake.

Adonis

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Mini Profile  Niicss

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Post     Post subject: RE

Hi, ksndi

Yeah, quit claim deed only transfer the interest not the loan. The loan still stays on the principal person. The loan doesn't gets transferred. All you will lose is the house but it won't affect your credit not it will show up in your credit report.

To learn more on quit claim deed, see http://www.mortgagefit.com/quitclaim-deed.html
Niicss

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Mini Profile  ksndi362636




Joined: 16 May 2006
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Post     Post subject:

how can i find out if he is missing his payments?
Mini Profile  blue

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Joined: 21 Oct 2005
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Post     Post subject:

Hi,

I believe the only way you can follow is to keep a contact with the lender so that you can a feedback about his delinquencies.

Blue
Mini Profile  helping_user

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Post     Post subject: Re: Get Notice of Default in case of miss a payment

Hi Ksndi,

I agree with Blue. That you need to keeps regular contact with the lender to know the payment status.

I think you have only done quit claim yourself from the mortgage. That means, still now you are liable for any default payment as you are in the title of the property. In that case, if the payment gets default you and the co-owners of the property will be informed by the lender simultaneously as notice sent by him.

When the borrower failed to make payment for a month, then the lenders take an initial action after getting failed to settle the issue out of the court. The lender mailed "Notice of Default" to the borrower by registered mail so that he has the proof of delivery. To know more about the notice, go through the section "Notice of Default".

If the borrower still didn't make the payment, then the lender issue "Act 91 Notice" to the borrower. Issuing the notice is a way of giving advice to the borrower for applies to HEMAP (Homeowners Emergency Mortgage Assistance Program) Loan. HEMAP is low interest loan program for low income individual to make their loan arrears.

But if the borrower becomes defaulter for consecutive 3 months, then he will receive a notice "Act 6 Notice of Intention to Foreclosure" from the lender.

Thanks
bbraht


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Post     Post subject: foreclosure

can my credit be damaged if im not on the loan but on the deed once its paid in full. my ex father in law is on the loan and he is letting it go into foreclosure. the loan is in his name.
Mini Profile  Samantha

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Post     Post subject:

Hi,

Welcome to MortgageFit Forums.

Don't get worried. As your name is not on the loan so, your credit won't have any negative effect because of the foreclosure.

Foreclosure will be reported in the account of the person whose name is on loan or who has signed the note. Thus, only the credit of your ex-father will be affected by this.

Feel free to ask if you have any more doubts.

God bless you.

For MortgageFit,
Samantha

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Frustrated in TX


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Post     Post subject: foreclosures

I recently closed on a home a week ago, and day one had multiple problems with water leakage in the walls, floors, and garage. No information of the such was disclosed by the seller or inspector.

I refuse to stay in a home that could be a potentially mold infected as a result of the leakage.

What if allow the home to be foreclosed? How does that affect my credit and for how long?

Thanks,
Frustrated in TX
kk


Guest




Post     Post subject:

Hi,

Foreclosure does have a very bad affect on the credit, you should not think of foreclosure as an option for the difficulties you are facing.

A foreclosure will stay on your report for as long as seven years. Instead you can ask for reason from the inspection agency as to why these defects were not stated to you.
Mini Profile  sara

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Post     Post subject: RE: will it affect credit if my home is foreclosed?

Hi Guest,

I can understand your frustration. It's really disgusting to close on a home spending a lot from your pocket ad then finding that it's not worth staying. Well, you can obviously contact the home inspector and ask for an explanation. But this is not going to solve your problem. Neither going for a foreclosure is desirable. This is because a foreclosure does affect your score negatively and reduces your chances of getting credit in future.

Thanks,

Sara.

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aka


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Post     Post subject: Help

I am somewhat in the same situation as Sara. I have tenants who are late every month. I recently lost my job. Also, there is water likage in the basement. I had the surroundings of the building concreted. One side stop leaking and i still have to work on another side. I have no money to keep up the mortgage. The house may go into foreclosure. Is there anyway i can give the house away to someone as i don't want a forelosure on my credit.
Please Help!!!
Thank you Crying or Very sad
Mini Profile  Samantha

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Post     Post subject: RE: get rid of home and loan to avoid foreclosure

Hi Aka,

I can only think of two ways to help you get out of this situation. Firstly, you can try to find out someone to whom you can transfer the property through quit claim deed. This will however not relieve you from the mortgage debt. So, you need to transfer the loan in the grantee's (to whom you transfer the home) name if at all you wish to get rid of it. For this, you will have to get the approval of your lender.

Secondly, if you can find a buyer who is willing to assume your loan and take responsibility of the payments, then you can avoid foreclosure. But this is possible only if your loan is an assumable mortgage. You need to check out the loan documents for any such provision or you can consult the lender.

Whether you transfer your property through quit claim or sell it to some other person, you need to do some kind of repair work in your home in order to improve it's condition.

Hope this information will help you.

God bless you

Samantha.

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