The housing market has finally started to turn itself around, there are fewer and fewer “for sale” signs and better mortgage rates than there were 8-10 years ago around this time. However, since the time has finally passed this means that the rough economic decisions you might have had to make might start really showing their true colors. It takes a while for the red to show up on your ledger, but how long, and for what period of time will this red mark remain on your credit report?
A credit report is generally updated every 30 days to line up with creditors billing cycles. Within 30-90 days after your delinquent mortgage payments, the lenders will start the foreclosure process. Once the bank files for a foreclosure, rules the loan delinquent, and processes the sale of the home, the entire process can take between 90-180 days. The foreclosure will appear on your credit report at a similar time. It’s possible for it to show up on your report a few days after the sale, or up to 30 days afterwards depending on where the bank is in their billing cycle.
In some states, the foreclosure process can take several months or even years, while in others, it can happen relatively quickly. Generally, the longer the foreclosure process takes, the longer it will take for the foreclosure to appear on your credit report.
How Does Foreclosure Affect Your Credit Score?
The impact of a foreclosure showing up on your credit report is roughly a 35 percent decrease in your credit score for the first year. The impact is likely to be more severe for the first two years, lessening as time goes on. Ironically enough, the higher your score was before the foreclosure the more negative impact it will have.
According to FICO, the company that calculates credit scores, foreclosure can lower your score by as much as 300 points. This is a significant drop and can make it difficult to obtain credit in the future.
How long does a foreclosure stay on my credit report?
The foreclosure will remain on your credit report for up to seven years, making it difficult to rebuild your credit. The duration that a foreclosure stays on your credit report depends on the credit bureau reporting it, and it typically starts from the date of the first missed payment. Once a foreclosure appears on your credit report, it can be challenging to remove it before the seven-year period is up.
As mentioned above, the impact of foreclosure on your credit score diminishes over time, and you can take steps to rebuild your credit score. You can start by paying your bills on time, reducing your debt, and applying for a secured credit card.
How does a foreclosure affect my ability to obtain credit in the future?
Once a foreclosure appears on your credit report, lenders may view you as a high-risk borrower, and it can make it challenging to obtain credit or loans. If you do get approved, you may be charged higher interest rates, which can cost you more money in the long run.
The severity of the impact of foreclosure on your credit score depends on several factors, such as the number of missed payments, the amount owed, and the time since the missed payment. However, the foreclosure itself can result in a more significant drop in your credit score. It is essential to take steps to minimize the impact of foreclosure on your credit score, such as working with your lender, paying off outstanding debts, and rebuilding your credit. Remember, with the right approach, you can recover from a foreclosure, and it is not the end of the road.
What Can You Do to Minimize the Damage of Foreclosure?
If you are facing foreclosure, there are steps you can take to minimize the damage to your credit score. Here are some tips to consider:
Work with your lender. If you are struggling to make your mortgage payments, contact your lender immediately. They may be willing to work with you to find a solution that allows you to keep your home and avoid foreclosure. For example, they may be willing to modify your loan or temporarily reduce your payments.
Consider a short sale. A short sale is when you sell your home for less than the amount owed on the mortgage. While it will still have a negative impact on your credit score, it is typically less damaging than a foreclosure. Additionally, it can help you avoid the legal and financial consequences of foreclosure.
Get professional help. If you are struggling with your mortgage payments, consider seeking professional help. A housing counselor can work with you to develop a plan to keep your home and avoid foreclosure. They can also help you navigate the foreclosure process and understand your rights as a homeowner.
Rebuild your credit. If you have experienced a foreclosure, it is important to start rebuilding your credit as soon as possible. This can include paying your bills on time, reducing your debt, and using credit responsibly. While it may take some time, you can improve your credit score over time with responsible credit behavior.
Foreclosure can have a significant impact on your credit score and financial well-being. It is important to understand when foreclosure shows up on your credit report, how it affects your credit score, and what you can do to minimize the damage. If you have foreclosure questions Stephen K. Hachey, a Florida real estate attorney, can help. Contact him at 813-549-0096.
