Why a Foreclosure Will Destroy Your Credit

Credit And Foreclosure Damage And Recovery

Your credit score is essentially a grade for your money management history. When you fail to make mortgage payments to the point that your home falls into foreclosure, it’s no wonder your credit takes a hit.

By not meeting financial obligations as a homeowner:

You have proved yourself to be a high risk borrower, which means a low credit score and in turn, trouble securing future loans and lines of credit at a reasonable rate.

While the damage to your credit score typically ranges from 100 to 300 points, positive credit history prior to a foreclosure will be taken into account, possibly lessening the blow.

Regardless of the amount, the credit drop will be significant.

This will affect your ability to obtain a new home or car loan, credit cards, insurance and possibly even employment. (Some employers use credit scores as a way of measuring trustworthiness of a job candidate.)

The foreclosure can appear on your credit report as soon as you are 90 days late on your mortgage payments (30 days in some states).

Those who face foreclosure often experience a compounding affect where due to their financial distress, they fall behind not only on their mortgage but also on all their other bills and payments, causing even greater damage to the credit score.

“A foreclosure doesn’t have

to ruin your credit forever.”

Ironically, the lower your score is to start:

The less you have to lose, as your score can only drop so far.

There is a seven-year penalty period after a foreclosure in which the foreclosure must remain on your credit report. You can, however, work to rebuild your credit long before that.

Add positive history to your credit report by paying off all bills in full and on time.

The good news is a foreclosure doesn’t have to ruin your credit forever. While the foreclosure remains on your credit report for seven years, the impact on your score will lessen over time.

If the foreclosure remains an isolated incident and you are able to prove your creditworthiness thereafter, your credit score can begin to rebound in as little as two years, reflecting the positive change.

Photo source: washingtonindependent.com

Advertiser Disclosure

BadCredit.org is a free online resource that offers valuable content and comparison services to users. To keep this resource 100% free for users, we receive advertising compensation from the financial products listed on this page. Along with key review factors, this compensation may impact how and where products appear on the page (including, for example, the order in which they appear). BadCredit.org does not include listings for all financial products.

Our Editorial Review Policy

Our site is committed to publishing independent, accurate content guided by strict editorial guidelines. Before articles and reviews are published on our site, they undergo a thorough review process performed by a team of independent editors and subject-matter experts to ensure the content’s accuracy, timeliness, and impartiality. Our editorial team is separate and independent of our site’s advertisers, and the opinions they express on our site are their own. To read more about our team members and their editorial backgrounds, please visit our site’s About page.