Foreclosure and Its Effect on Your Credit Score

Foreclosure is the lawful procedure that terminates the rights of a homeowner and gives the ownership to the mortgage lender. This happens when a homeowner fails to pay the monthly mortgage payment as agreed upon.

Foreclosures can greatly affect one’s credit score, but you can avoid it if you have control over your finances to begin with. If you have been included in the foreclosure listing, it can decrease your credit score by up to 250 points. The severity of this damage, however, depends on your credit history.

If you have been paying your credit card bills and other loans on time, it can positively alter the impact of the foreclosure. If the amount of your current debt is considerably lower than the amount of your available credit, then the effects of the foreclosure on your credit score can also be tempered.

Payment history makes up 35% of your total credit rating, and your late mortgage payments are included here. Current debt makes up 30%, the length of your credit history accounts for 15%, your credit card and installment loan balance makes up 10%, and your recently opened credit account makes up 10%.

Foreclosure accounts are normally listed in the Public Information category of your credit report and it will be there for seven long years. However, during that period, the effects of the foreclosure on your credit score lessen as each year passes by. New home loan applications will be considered three years after a foreclosure.

If, by error, the foreclosure is still present in your credit report even after seven year, you can file a complaint so that the credit bureau will have it removed. The three credit bureaus that are held accountable for the information in your credit file are TransUnion and Equifax and Experian.

If you’re not good at handling your credit, a foreclosure is inevitable. And even though the effects of foreclosure lessen with time, you still don’t have an excuse to live outside your means.

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