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