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How foreclosure affects your credit score

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 24th May, 2006 07:15am
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.
Posted on: 24th May, 2006 07:15 am
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?
Hi Aka,

Currently I am not familar with any such company. But you can post in our forums, the minimum information about your property as our Community member. May be any of our members can come up with the information you require.

God bless you.

Samantha
Posted on: 20th Nov, 2006 01:12 am
can I quit claim the title to my brother who has excellent credit so he can refinance the house before it gets into foreclosure?
Posted on: 08th Jan, 2007 09:52 am
You can quit claim the house but the loan will still be in your name. So, how can your brother refinance the house. Is his name on the loan? If yes, then refinance can be done and at closing, the loan documents will be signed only in your brother's name.
Posted on: 08th Jan, 2007 10:16 pm
Posted on: 09th Jan, 2007 04:35 am
i have had a quick claim done and filed, but exwife has filed bankrupcy and is moving out of the house, leaving me with loan to pay, what options do i have
Posted on: 29th Jan, 2007 07:37 am
Welcome Grace,

It seems that you have already transferred your property in your ex-wife's name. But are you on the loan also?

What type of bankruptcy has your ex-wife filed. Please explain your situation so that I can give you some suggestions.
Posted on: 29th Jan, 2007 10:54 pm
I went through a divorce and my ex husband and i quitclaimed the house to my inlaws with an agreement that they will refinance in 3 months. They said they just wanted to help but our plan was to sell the house.It's been over a year and they still have not refinanced and I'm worried because it is affecting my credit score. The loan is still under my name and my ex husband's name. My ex in laws are not returning my phone calls. I'm worried it might get to foreclosure. I was out of the house since September 2005 and they have been paying the mortgage eversince however, there are times that they are late. What can I do? Should I file a case against them? It was just a verbal agreement that they assured me they will refinance in 3 months and they didn't do it. Please let me know what steps I could take to resolve this.
Posted on: 10th May, 2007 11:55 am
Hi Marianne,

Welcome to Mortgagefit discussion board.

The mistake you did was not to document the agreement you had. You need to tell them that they will lose the house if the payments are not made in time and the lender forecloses.

I do not know how helpful filing a case would be as you have no written proof that in-laws did agree to refinance the mortgage. But still you can consult an attorney to know if something can be possible or not.

Do let me know if you have any other questions.

Thanks
Blue
Posted on: 10th May, 2007 12:36 pm
In laws own the house now and they stop the payments chances are that they lose the house. Plus your credit score will go down. To save your credit you can ask them to sell the house pay off the mortgage balance and keep any balance profit.

I cannot see any other solution to the problem you are in.

Moberg
Posted on: 10th May, 2007 07:20 pm
Hi Marianne,

Welcome to our forums.

Frankly speaking, you did a mistake by not making a written agreement regarding the refinance. But we all learn from mistakes, so do not worry. Have patience and be positive. Things will turn out well once you can find a way out of this problem. Now, of the loan is still in your name, then the lender would definitely ask for the payments. But your ex-husband's name is also on the loan, so it is partly his responsibility to make payments.

What I feel is that, you should first approach the lender and tell him all that is happening to you. Talk to him freely and tell him that the co-borrower isn't responding. The lender has the right to demand payments from your husband and even take over the property in case the loan is not repaid I full. But is your ex-husband still not aware of what your in-laws are doing or is he involved in this?

I don't think you will get much by filing a lawsuit. This is because you have no written evidence of the fact that your in-laws would refinance. However, consulting an attorney would be the right step taken at this point of time.

Good luck
Posted on: 11th May, 2007 05:26 am
I brought my house before I got married, I've been married 12yrs and getting ready to file for divorce. I live in the state of NY. If I guick deed my house to someone, will he be intitled to have my house, His name isn't on the deed or mortage?
Posted on: 17th Jun, 2007 12:11 pm
Hi Ann,

Welcome to the forums.

His name may not be on the deed now. But when you quitclaim your property to the person, it implies that he's getting ownership rights over your share of interest in the property. And the quitclaim has nothing to do with the mortgage, if any.

Take Care
Posted on: 18th Jun, 2007 02:23 am
"will he be intitled to have my house, His name isn't on the deed or mortage?"

Hi Ann,

As you had purchased the house before your marriage and his name was not on the title or mortgage, he will not be entitled to get anything. You can quit claim it to anyone you wish to. Property is your sole property and he does not have any rights over it.

Colin
Posted on: 18th Jun, 2007 04:43 pm
i bought a house with an interest only loan and the market hit a wall, now my house dropped from 350,000 to 300,000 and i can't even keep up with the payments. If i foreclose will the loaner be able to ruin my life such as take my business that i own. and also will i ever be able to buy a house again and have bank accounts
Posted on: 09th Jul, 2007 12:15 pm
Hi Alex,

There are many options open & you should not think about foreclosure right now.

How much balance left on the mortgage? Did you search the possibility of refinancing your present mortgage? Any equity in the house?

And selling the house right now can be one alternative present for you.

Miller
Posted on: 09th Jul, 2007 01:04 pm
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