And then there’s the relationship between foreclosure and credit score. It’s a well-known fact that defaulting on a home loan means your credit takes a significant hit, but the details of what you can expect to happen to your score are often overlooked. Read on to learn more about the deeper implications of the effects of foreclosure on your financial future. As scary as it sounds, having more information will help you cope with the loss, minimize the damage, and get your credit back on track faster.
How Much Will You Be Affected?
It’s tough to pinpoint what the exact damage will be for you, but your FICO score can drop as much as 200 to 300 points if you’re forced to give up your home due to non-payment. That means that even if you went into the loan with a score of 730, you could see that drop to 530 or even lower!
Unfortunately, the damage doesn’t stop there. Because of this decreased score, it will be tough to get approved for any other form of credit like a credit card or auto loan. Even if you are approved, you’ll face much higher interest rates and stiffer terms than you probably did before facing foreclosure.
Additionally, if you’re looking for a job to help yourself get out of this financial debacle there’s more to consider. If an employer does a credit check, you risk being passed over based on what the report will show.
How Long Will You Be Affected?
The foreclosure can stay on your credit report for up to seven years from the date of the court disposition. However, it will affect your score less as time passes. There’s no doubt that lenders will still consider foreclosure a highly negative event, but it will by no means ruin your credit for the rest of your life.
After those seven years are up, check your credit score (which you should do once a year from all three major credit bureaus anyways) and make sure it really did drop off. If it didn’t, you can make a request in writing to have the error on your report corrected.
Is There Any Good News?
Yes! As long as you’re careful to keep all of your other accounts in good standing, you can start to see your credit score bounce back in as little as two years. It also pays to be careful and only apply for credit that you actually need to avoid too many hard inquiries that can lower your score even more.
In short, a foreclosure will have a significant impact on your credit that will take years to recover from, but it won’t last forever. Taking steps to pay all your bills on time, every time will ensure that your FICO score will start increasing again as soon as possible after losing your house.
Want to avoid the pain of the foreclosure process? We can help homeowners facing foreclosure by paying cash for their houses and closing in 7 to 10 days! Call us at 469-250-0018 or fill out a form online today.