subject: How Foreclosure Works On Your Credit Record [print this page] For many homeowners out there, one of the most important questions is, How does foreclosure work on your credit? When making a large financial decision, it makes sense to quantify the possible credit impact. Foreclosure is among the worst events for a credit score, but just how bad is the impact? Though it is difficult to put an exact credit score value on foreclosure given the nature of the scoring system, most financial advisers will tell you that it has a major impact on your FICO scores. With this in mind, there are many ways to mitigate the negative effects of foreclosure proceedings.
The immediate credit impact
How does foreclosure work on your credit immediately? The general consensus is that it brings down credit scores an average of 250 points. Depending upon the size of the mortgage and the circumstances surrounding the foreclosure proceedings, it could be slightly more or slightly less. This means that individuals facing foreclosure run into major problems trying to find financing for new projects. Auto loans can become notoriously difficult to acquire and credit cards see increased rates. The often 200 point dip can take a person from reasonably good credit all the way down to poor credit.
The cumulative effect of foreclosure
What happens after foreclosure is not nearly as important as what happens during the foreclosure process. Those who allow their homes to slip into bank seizure are often behind on their payments, since these things are not reported to credit bureaus until they are between 30 and 90 days past due. Likewise, foreclosure proceedings typically reveal larger financial issues, so many people are missing other payments at the same time. The cumulative impact of all of these missed payments is often as detrimental as the actual foreclosure being listed on the credit report.
The long lasting impact of foreclosure
As an isolated incident, foreclosures are easier to get over than some might think. What happens after foreclosure is that the incident will sit on your credit report for seven years. It will have a detrimental impact during that time period, but homeowners have a chance to start rebuilding their credit scores within a couple of years. The key is making sure that the foreclosure is the only problem on the report, and not letting other credit obligations fall off. A pattern of missed payments will be much more harmful over the long run, whereas individuals can overcome a foreclosure with enough time and patience.
What can be done?
Many individuals wonder about homeowner rights on a foreclosure and they want to know just what they can do. There are many homeowner rights on a foreclosure that can help individuals avoid the huge credit hit that comes along with this type of incident. Many individuals contact the lender directly, hoping to work out some kind of plan before the court papers have been served. Others take to foreclosure mediation, where you and the bank come together in a neutral setting to discuss various repayment and sale options. Sometimes individuals can sell their homes to people who will allow them to rent their home again in order to salvage their credit report and maintain their household.
How does foreclosure work on your credit once it is sitting on the report? Smart consumers wont let this happen, as they will find a way around the difficult process. If it does end up on your credit report, the smart thing is to begin rebuilding your reputation right away. Time will heal the wounds, but make sure that it is an isolated incident and that your other credit payments reflect this fact. With a solid repayment plan for other debts, homeowners can begin establishing themselves in the financial world once again. Often times, they will see progress within a couple of years, with the real corrections coming in the five to seven year range for most people.
