Home Foreclosures

 

It is difficult to determine how foreclosure will affect a credit report.  The company that created the credit scoring system most people are familiar with was the Fair Isaac Company.  The term “fico score” is what determines a person’s credit worthiness for many lenders.  The Fair-Isaac company does not reveal to what extent a foreclosure will impact a credit report and any changes occur immediately.

 

A credit score is negatively impacted by the lack of payments made on the mortgage for the home that goes into foreclosure.  Depending on the lender’s policies a mortgage may be able to default for 90, 120, 150, or even more days before foreclosure ensues.  Each of the increased periods of non or late payments along with any other bills a person is defaulting on will cause dramatic drops in their credit score.  A low credit score will cause lenders to charge exorbitant interest rates if they are willing to grant credit at all.  Even if your financial situation improves, a credit score can take years to get back.

 

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The impact of a foreclosure will be different for each person.  A foreclosure also does not mean that a person will never be able to own a home again.  It is possible for most to purchase a home, even within the first year of a foreclosure.  The interest rate will be high and the down payment required will most likely be large but it is possible.  Moreover, several years after a foreclosure there may be little to no effect on your ability to obtain a prime rate mortgage providing there have been no additional negative credit reporting.

 

A general assessment of potential damage to a credit report from a foreclosure is somewhere in the 100 to 140 point range.  Late payments, collections, and judgments from other bills at once tend to have the greatest impact when a person is in financial distress.  A “deed in lieu of foreclosure” proceeding reports the same as a foreclosure does.  A foreclosure will remain on a credit report for at least seven years and possibly as many as twenty as a public record.  If it isn’t removed after this time you should take steps to have it removed.

 

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