A foreclosure happens when you can no longer afford to pay your mortgage payments and, as a result, your lender seizes and sells your home. Regrettably, a foreclosure does not only cost you your property. Evidence of this foreclosure will show up on your credit report as a public record and adversely impact your credit score–costing you your good credit score too.
Facts
Regardless of whether your lender uses a judicial foreclosure and requires you to court to seize your house, or seizes it independently through a non-judicial foreclosure, a listing of the occasion will appear in your county’s public documents. All three credit bureaus, Experian, TransUnion and Equifax, have representatives who routinely examine new public documents including foreclosures, bankruptcies and decisions. When the foreclosure appears from the county’s public record, the credit bureaus will add it to your credit report.
Significance
Based on AOL Real Estate, when the credit bureaus put the foreclosure on your credit report, your credit score will drop up to 300 points. Considering that the highest possible credit score you’ll have is 850, the reduction of 300 points constitutes a significant decline in your credit score. When future lenders and creditors run a credit inquiry, they’ll observe the foreclosure and understand that, before, you were unable to satisfy your repayment obligations to a lender. This may lead to future applications for credit cards, loans and insurance has been turned down.
Time Frame
Once a foreclosure appears on your credit record, it is going to stay there for seven years–the time period set for many negative credit notations from the Fair Credit Reporting Act. If you file for bankruptcy to stall or protect against foreclosure, as most folks in this scenario do, the insolvency notation can appear for another 10 years–further staining your credit report and damaging your credit score.
Outcomes
Following a foreclosure lowers your credit score, future lenders will charge higher rates of interest on loans and credit cardsif they approve your applications in any way. A foreclosure may even affect your job chances. An Associated Press report notes that some companies assess applicants’ credit histories to guarantee that the employee chosen for the job includes a good sense of responsibility. Thus, the negative impact a foreclosure has on you and your family members can continue long after the lender seizes your property.
Factors
Your credit score fluctuates over time and relies on an assortment of factors. The Fair Isaac Corporation’s credit rating formula, called the FICO score, is the scoring method lenders use over any other to assess borrower eligibility. Among the key factors that determines that the FICO score is how recently a specified financial event occurred. Thus, provided you pay your creditors on time and demonstrate responsible financial behavior, your credit score will slowly grow before the foreclosure vanishes from your credit report permanently.