subject: How Does Foreclosure Affect A Person's Credit? [print this page] A foreclosure can have a significant effect on a person's credit report score. It's difficult to say exactly how much a foreclosure affects your credit score, because the credit rating system is a carefully guarded secret by the companies who determine credit scores. However, there are several stages to a foreclosure, and each can have a different effect on your credit score.
For starters, a lack of mortgage payments will affect your credit score before a foreclosure takes place. Just as if you miss a credit card or car loan payment by more than 30 days, the mortgage company will report your default to a credit agency, and this can take place before a foreclosure even begins. Late payments on any kind of loan can cause bad credit, but it's best to try and stop foreclosure before it occurs to avoid a bigger drop in your credit debt score.
As far as the foreclosure itself, it's estimated that a foreclosure can lower your credit score by anywhere from 100 to 150 points. The foreclosure will then remain on your credit record for the next 7 years. You can petition a court to have it removed before then, but it is rarely successful. However, this doesn't mean you won't be able to secure a home loan for a full 7 years.
After a foreclosure, it's important to do everything you can to improve your credit score. This means staying on top of your bills and disputing any negative points on your credit report. Carefully monitor your progress, and in addition, save as much money as you can for a down payment on a new mortgage. A foreclosure on your record and the subsequent lowered credit score won't automatically make you ineligible for a mortgage loan, but it will usually result in a much higher interest rate than normal. The bigger the down payment you can provide, the lower your interest rate will be.
Of course, it's better to avoid foreclosure and avoid bankruptcy from the outset! This means exploring your options, including loan modification, before a foreclosure takes places so you aren't the victim of a mortgage short sale. To learn more about how to avoid foreclosure, explore more of our site.
As long as you take steps to fix your credit score, a foreclosure doesn't mean your credit is ruined. Stay on top of your finances, and you'll see the results reflected in your credit score sooner than you might think!
