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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 Guest,

If your property goes into foreclosure, you would still be liable for the deficient balance resulting from the sale of the property. Moreover, a foreclosure would lower your credit score by 250 points and you won't be able to get a mortgage for the next 3-4 years.

Thanks
Posted on: 05th Mar, 2010 12:50 am
How does BK affect a credit rating - and for how long?
Posted on: 06th Mar, 2010 10:45 am
All negative items stay up to 7yrs

With BK it maybe be better because it makes all the negative accounts UNDER the BK as UNRATED.
So instead of having 10 negative accounts...you'll have 1 acct as U or UNRATED
I had a borrower who didnt have 2 items listed as the U and when they changed it...his score went up
Posted on: 06th Mar, 2010 04:59 pm
Divorce exwife stayed with the house she lost the home due to a forecloser, divorce decree stated she stayed with the house. Would this affect my credit score.
Posted on: 10th Mar, 2010 01:48 pm
if your name was on the credit account, then unfortunately the answer is yes.

this means if she didn't refinance your name off the mortgage then your credit will get affected as well
Posted on: 10th Mar, 2010 02:03 pm
My home is in foreclosure and I had a bankruptcy 7 years ago in which I did not reaffirm my mortgage in the bankruptcy. My mortgage does not show up on my credit report. My question is: Will the foreclosre show up on my credit report after foreclosure since my mortgage was not reaffirmed?
Posted on: 12th Mar, 2010 06:46 am
devia - possibly it can but if it hasn't showed up in 7yrs...then probably not

either way you will need to answer truthfully to the mortgage declarations which ask if you EVER had a FC ...even if it doesnt show up on your CR
Posted on: 12th Mar, 2010 06:54 am
I am praying for a buyer!!! I may be forced to let my 1 bdrm condo go into foreclosure (can no longer afford the taxes). The property has been on the market for 4 months.
If foreclosure is my last alternative, how long do I continue to pay the association fees?
Posted on: 13th Mar, 2010 11:10 am
regrett - that depends on your HOA. HOA's are quick to act on Foreclosures...unlike banks that may take 1-2yrs
Posted on: 14th Mar, 2010 08:29 pm
I was clear of my debts by filing bankrupcy about a year ago, along with that I was planing to foreclosure on a property in Florida that I stop paying since my bankrupcy. however I apoke to the bank and they are willing to work a shortsale.Whould a shortsale have less impact on my credit or should I not bother since I alredy have the bankrupcy behind me?
Posted on: 16th Mar, 2010 07:42 am
shortsales will lower your score about 50-75 points

Foreclosures can be up to 150+
Posted on: 16th Mar, 2010 07:48 am
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