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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?
Good morning,
I thought that a foreclosure, since they are so common nowadays, would not have the same dire effect as they used to in the past?

brenda v.

[Link removed as per forum rules. Thanks.]
Posted on: 14th Mar, 2008 07:15 am
Hi Cowlovinmom,

Welome to the forum.

Foreclosure does have a negative effect on one's credit at least for the first 2 years and lower the score by 150-200 depending upon other factors. However, the effect dies down with time and even if it remains on the credit report for 7 years, it is not considered as a part of the borrower's credit rating.

Posted on: 14th Mar, 2008 11:43 pm
That is a big hit 150-200. I am glad to see it isn't held over your head forever. I wish the best for anyone going through foreclosure. I haven't been there myself but since getting a home equity earlier this year and having a larger payment it makes me nervous to think about how it can happen to anyone. That does bring me to a question. We took out all the insurances on our loan but with in a week started getting advertisements from mortgage protection centers. We were assured at the bank we were covered so why is everyone else sending out applications to us now? The one says you may thinl your protected but...and goes on to list some scary stuff. Is bank insurance good enough?
Posted on: 22nd Mar, 2008 05:52 pm
Well i suppose the bank insurance is a reliable policy.

"We took out all the insurances on our loan but with in a week started getting advertisements from mortgage protection centers."
You mean you have taken out insurances like the PMI, Homeowners Insurance and then again you're receiving requests for applications, is that so? that's strange enough!
Posted on: 25th Mar, 2008 05:03 am
I have a house in my name and added my husband on the deed after. It seems we may go into forclosure. I will also need to bankrupt. Will any of this affect my husbands credit or will he be affected at all? Thank you.
Posted on: 25th Mar, 2008 10:08 am
Posted on: 25th Mar, 2008 02:10 pm
He's right it will effect your hubbies credit too. It will put you in a bind for years to come. Hope you can find another route..Good Luck.
Posted on: 25th Mar, 2008 04:52 pm
Please make sure there are no other alternatives out there before taking such a drastic measure. It will effect both of your credit and that makes things more complicated becasue you won't have a good crfedit score to fall back on. Check and see if there are any programs offered in your area for people in your situation. They may help you out. Good luck.
Posted on: 11th Apr, 2008 09:07 pm
It will stay on your record for the next ten years, you will regret it for a long time to come, really do your research and see if there are other options before you decide to do this, what ever you choose it will not be easy, but bankruptsy is and should be the last resort, seek out other options.
Posted on: 13th Apr, 2008 05:19 am
It really should be the last result. Unless they changes some law a bankruptsy will only show for seven years. Quite a long time ago (at least it seems that way) I had to do this myself. It was not an easy decision to make but one that had to be done. My first husband was diagnosed with kidney cancer and with in 6 months passed away. I was sruggling to keep everthing up with a little child and the stress from the bills and his death almost put me overboard. I did what I had to do because if not my son would have lost to to death and the other to insanity. With things going the way they are today you got to feel bad for someone in this situation. You pay soo much more for the same things from your paycheck that you can't even catch things up once they get behind and sometimes you have to choose between paying a bill or feeding your family. Hope someone gets into office and straightens out this mess.
Posted on: 17th Apr, 2008 04:24 am
I think that bankruptcy will become more common with todays economy, people can not afford things that are essential to everyday life, as people go to work everyday, two parent households both at work and single parents working two jobs and they still can not afford lifes everday needs, more and more people will find themselves in this boat, they have no choice but to file it. Ruin their credit or not.
Posted on: 20th Apr, 2008 08:18 am
You said it their jbarto. My husband and I both work and there never seems to ever be any money left. I wish gas prices would go down. I know that is what eats up mu hubbys check after paying bills. Mine goes to tires, taxes, household, and since moving..excavators,grass seed, credit card debt. I just sometimes think if we even had half the money we pay out in gas I could get so much more taken care of finacially. It is sickening that it takes $60 for a half tank of gas.
Posted on: 20th Apr, 2008 05:47 pm
Can you quit claim a house that is already in foreclosure?
Posted on: 14th May, 2008 04:57 pm
Welcome swidgeon.

The answer of your question is NO. If the property is already foreclosed then you are no longer the owner of the property. But the owner of the property can only quitclaim. So after the foreclosure you cannot quitclaim it to anyone.

By the way has your property already been foreclosed? If not then try to avoid it. Contact the mortgage company and inform the reason. The company may provide you some solution.

Keep us posted and let me know if you have any further questions.
Posted on: 15th May, 2008 12:03 am
Niicss is right. After foreclosure starts its pretty much over with. Good luck
Posted on: 23rd May, 2008 07:59 pm
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