Most people understand that our credit scores affect our daily lives. Generally, it is difficult to get a loan or obtain a credit card without decent credit. If a person's credit score is low, he or she may be able to get a loan but the interest rate may be unreasonably high. The lender may even add some creditor-friendly clauses into the lending agreement that otherwise would not typically be present.
If you're going through the foreclosure process, it's important to know how your score will be affected and for how long. Then you can take the necessary steps going forward to get back on track in the shortest time possible.
A foreclosure will negatively affect your credit score by anywhere from 100 to 150 points. In addition, the late or missed payments will reduce your score even more. For instance, you may have two, three, or more missed mortgage payments before the lender initiates the foreclosure. These will damage your score even before the actual foreclosure, albeit not as much.
The actual foreclosure process of the lender taking over the ownership of the home will be the larger hit. If you are able to work out some type of loan modification or short-sale before the foreclosure takes place, your score won't be impacted as much.
Further, the general rule is that a foreclosure will affect your credit score for around seven years. It can also stay on your credit report for up to 20 years if you do not take steps to remove it. Fortunately, you can quickly regroup and start improving your credit score immediately after a foreclosure, usually within a year or two. We have discussed ways to improve your credit score in a previous post.
Even if you are having a financial difficulty dealing with a foreclosure, it's not something that will ruin your credit forever. Credit is decided by many factors and a foreclosure is simply another event that creditors consider. An experienced bankruptcy attorney can help you to further understand the foreclosure process and also help you to get your credit score up to where it needs to be.