How Foreclosure Effects Your Credit
Thomas Janos Real Estate Agent White Bear Lake, MN (651) 407-7803 Contact Profile
Having a foreclosure on one's credit report will not decrease the score to the point where it is impossible to get any other loans. However, the entire foreclosure process often has many more negative aspects to it than just the actual legal procedures in the county courts and charge-off of the loan after a county auction.
As soon as homeowners miss mortgage payments, their credit score will begin to drop immediately. Having one or two missed payments over years of steady payments, though, does not impact their loan history as much as when they experience a hardship and start stringing together 30-, 60-, or 90-day periods where they are late.
Once borrowers do fall behind by more than a month or two, though, their ability to take out any new large loans based on their credit will effectively disappear, lenders will be aware that there is a current financial crisis and any new loans have little chance of being repaid. This is, of course, one of the main reasons homeowners should try and stop the foreclosure process as soon as there is a chance of financial hardship, even before they have missed their first payment.
But in terms of the credit score, even having several late mortgage payments may not drag it down as far as possible. The credit reporting agencies base their scoring system around the total picture of the borrower's payment and credit situation, meaning that the more debts the homeowners can keep up payments on, the higher they will keep their score.
Also, if homeowners have credit
cards, car loans, student loans, and other bills and have kept on time with all of them, they may be able to retain a good score (although probably not an excellent one). The real risk to credit comes when payments are late on numerous debts at once, as may happen during a real economic hardship.
Even borrowers with a near perfect credit score above 750 (out of 800 total) can experience a drop into the low 600s just by missing mortgage payments for consecutive months and going into foreclosure. Combine that with numerous other late payments or collection accounts, and the score can drop into the middle or high 400s.
The important thing to remember is that simply having a foreclosure is not that significant an event to destroy homeowners' credit scores all on its own. But for owners who are defaulting on other debts at the same time as facing foreclosure, it may take years of recovery to regain even a good credit rating. For homeowners who are in danger of foreclosure, though, it will be dependent on their circumstances whether to preserve their home at all costs or keep their credit score as high as possible.
To find out more about foreclosures and for a Free copy of our Foreclosure Handbook please visit our website: www.TheJanosGroup.com
If your facing foreclosure please contact our office for a free foreclosure counseling session to find out exactly what your options are and the best plan of action for your situation.
The Janos Group
4910 Highway 61
White Bear Lake, MN 55110