Does Foreclosure Affect Your Credit?
The goal of a credit report is to provide information to lenders about your payment history. In essence, a foreclosure is a default. This is a damaging mark on your credit report. The degree of how much a foreclosure affects you credit score will depend on what your score was before foreclosure.
Other People Are Reading
-
Foreclosure Process
-
A bank can begin the process of foreclosing on your home as soon as two consecutive months of non-payment. During this time, the fact that you have been delinquent on your mortgage is reported to the credit rating agencies. The bank will send you several notices asking you to bring your account current. The first is a letter to accelerate followed by a demand letter, and then a notice of default giving you 20-30 days to respond. The final communication is a notice of sale, which sets the auction date for your home.
Credit Report
-
During the foreclosure process, the bank will continue to report your delinquency to the credit rating agencies. Delinquencies are reported 30 days after your first missed payment and every 30 days thereafter. Thus, the longer you are delinquent on your mortgage, the worse off your credit score. Since your credit report provides lenders with details of your payment history, any credit action such as delinquency, foreclosure and default is reported to the credit rating agencies.
-
Continued Liability
-
When the bank reclaims your property through foreclosure, it is with the intent of selling it to recover the debt. If the bank sells the property for less than the value of the loan, it can still pursue you for the balance. In most cases, the bank will tack on its legal fees to the amount that you owe.
Credit Effect
-
A foreclosure may lower your credit score dramatically, remaining on your credit report for seven years. According to Experian, a foreclosure may not be as bad as a bankruptcy, but the fact that you defaulted on your mortgage and lost your home will be viewed negatively by other lenders. It will be difficult to borrow in the short-term and you will have to pay a higher interest rate for the privilege of borrowing.
-
References
- Photo Credit old home image by pearlguy from Fotolia.com
