How can a foreclosure affect your credit score?

You have worked so hard to acquire a property by using a credit score and now you are learning that this property could affect your credit report badly if you can no longer afford to make mortgage payments. What can you do? Aside from a bankruptcy, a property foreclosure is one of the things that can negatively affect your credit. Foreclosure can have an immediate impact that would take years to recover from. Therefore, be sure to look at all possible options before giving into a foreclosure.

Late Mortgage Payments:  A foreclosure is the process of the lender assuming ownership of a property due to late mortgage payments. This usually begins after someone is 120 days late on the mortgage. Depending on your place of residence, the foreclosure process and procedures may vary. Nonetheless, as soon as a late payment is reported on your credit report, it will negatively affect your score just like any other late payments reported. The more you obtain late payments, the lower your score drops. Keep in mind, most mortgage companies would add on late fees to the missed mortgage payments. During this time, it is important to start talking to your mortgage company to receive any pardon or a reduced payment option. It is not unrealistic to see a 100-point drop in your credit solely due to late mortgage payments. 

              Long Term Credit Impact: Once you’ve obtained multiple late payments and perhaps gave into foreclosure your credit will be greatly affected. Even if you can pay shortly after foreclosure is filed, it is still a significant strain on your credit report. This strain can last several years, posing problems not just on future home ownership but also on any other big purchases you may desire. Even if you are approved for other purchases such as a new car, you may be faced with higher interest and higher payments. You may even have issues finding a place to stay post foreclosure. Some landlords will run your credit and may have minimum credit requirements. Additionally, even if there are changes in your financial profile and assets after foreclosure some institutions and/ or lenders will not budge on their guidelines. Moreover, it may be difficult to take advantage of deals or opportunities that would otherwise not be available after overcoming the foreclosure history disaster. 

Some things in life are simply unavoidable and must be dealt with. However, when you are facing foreclosure, you should know that there are solutions, and you may have options. A short sale is not a perfect option, but much better than a foreclosure. If you find yourself late you should always assess your situation and know where you stand before doing anything. From the moment you start missing payments, you should act fast. If you can’t save your home, save your credit!