Once a home is lost due to foreclosure, the homeowner's credit score could drop dramatically. According to FICO, for borrowers with a good credit score, a foreclosure can lower their score by 100 points or more. If your credit score is excellent, a foreclosure could reduce it by up to 160 points. Unfortunately, a foreclosure stays on record with all three national credit bureaus for seven years.
However, the negative impact of a foreclosure decreases over time. Depending on other elements of your credit history and the type of mortgage lender, you may even be able to qualify for a new home loan as soon as two years after the foreclosure is complete. A foreclosure stays on your credit reports for seven years from the date of the first late payment, reducing your credit score. After that period of time, the foreclosure mark should automatically disappear from your reports.
However, you can start working to restore your credit score right away. Even if you manage to stop a foreclosure and reinstate the loan by paying the past balance (plus fees and penalties), your credit history may already be damaged. When you undergo foreclosure, your mortgage lender will attempt to recover the amount owed by taking possession of a mortgaged property and selling it. It will stay on your credit report and affect your credit for seven years, but the effect of foreclosure will be less as time goes by and you improve your credit.
You'll learn how to learn more about your foreclosure and your credit and what steps you can take to buy a home after foreclosure. Read more to learn how you can overcome a foreclosure, rebuild your credit history, and what steps you can take to buy a home after foreclosure. Foreclosure is a legal process that you may decide to undertake if you are unable to continue making payments. With this option, you will sign the house deed to the lender and the lender will not undertake a foreclosure.
FICO also states that the higher your score, the longer it will take you to fully recover from a foreclosure reported on your credit report. The foreclosure process can be overwhelming, but it often doesn't make financial sense to hold onto property that you can no longer afford. A legitimate foreclosure registration cannot be removed from your credit report before its due date, seven years after the date of the first late payment on the loan. If you had to go through foreclosure because you couldn't pay your mortgage, know that your credit won't be tarnished forever.
The annotation remains on your credit report for seven years from the date of the first late payment that caused the foreclosure. Foreclosures usually occur only after you miss at least four consecutive monthly payments (120 days of delinquency). The bad news is that as long as foreclosure appears on your credit report, your credit score will be adversely affected. Experian will declare a short sale as “unpaid as agreed” and, like the foreclosure, will remain on your credit report for seven years.
Foreclosure is a difficult process that can have a significant negative impact on your credit, but with time and good credit habits, it's possible to recover and one day buy another home of your own.