Sometimes, we all face financial difficulties. At times, these difficulties can lead to missed mortgage payments. After a certain number of missed payments, the lender may begin foreclosure proceedings, allowing them to take ownership if the process is completed.
How does foreclosure affect your credit report?
While state laws govern many specific aspects of how foreclosure proceedings are carried out, the federal government has restrictions on when the process can begin. In most cases, lenders cannot initiate foreclosure proceedings until you are at least 120 days behind on your mortgage payments. There is a good chance you will miss at least four payments before the lender notifies you that foreclosure may be on the table.
However, the impact of foreclosure on your credit report begins before the formal notification. Even missing one mortgage payment can affect your credit report. Depending on the current point of your credit report, skipping just one mortgage payment can drop your FICO score by 100 points or more. In fact, the higher your current points and the cleaner your record, the more severe the drop if you miss a mortgage payment.
Every late payment affects your credit report as soon as it happens. One of the reasons that foreclosure is a big deal is that every late payment you have has a cumulative effect in lowering your score.
Over time, you could lose 150 points or more from your credit score by the time the foreclosure process is completed.
How long does foreclosure stay on your credit report?
Foreclosure remains on your credit report for seven years, starting from the date of the first relevant late payment. Once seven years have passed from that date, the derogatory account should automatically be deleted from your credit report.
If your credit report still shows foreclosure after the seven years, you can file a dispute with the credit reporting agency. The agency must investigate the situation within 30 days to determine if you are correct. If you can show that your first late payment was reported over seven years ago, that should be enough to remove the item from your credit report.
Reducing the impact of foreclosure on your credit score
However, although your late payments and foreclosure stay on your credit report for seven years, the passage of time lessens their impact on your credit score.
If you want to reduce the impact of foreclosure, develop other credit habits that can show a pattern of overall improvement. Pay other payments on time, including your credit card and personal loans. You can also reduce your debt by paying off any credit cards.
These steps will be more recent and will “outweigh” the previous delinquency as foreclosure fades into the financial rearview mirror.
Ultimately, you will even be able to buy a new home. Depending on the type of loan you obtain, you may be able to qualify for a home loan just three years after foreclosure. Some lenders may require you to wait longer before getting a new home loan, but if you have made progress and can show that your situation has changed, you may be able to get the new home loan sooner than you think.
Conclusion
Yes,
Your credit report will retain the foreclosure for seven years. However, this does not mean you won’t be able to do anything in your finances for that entire period. A home foreclosure is a serious issue that will limit your financial options for a few years, but the further you get from the foreclosure event, the less impact it will have.
As long as you demonstrate responsible credit behavior in the future and make an effort to keep your debt levels low and pay your other bills on time, your credit scores will start to improve and eventually recover.
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Sources:
– Consumer Financial Protection Bureau. “If I Lose My Home to Foreclosure, Can I Ever Buy a Home Again? What Impact Will a Foreclosure Have on My Credit Report?”
– Consumer Financial Protection Bureau. “Factsheet on Delinquency and the 2016 Mortgage Servicing Rule,” Page 5.
– Fair Isaac Corporation. “Research Looks at How Mortgage Delinquencies Affect Scores.”
– Experian. “Can I Get a Foreclosure Removed From My Credit Report?”
Source: https://www.thebalancemoney.com/how-long-does-a-foreclosure-stay-on-your-credit-report-4766974
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