How Does a Foreclosure Impact My Credit Report?
A property foreclosure is one of the worst things that can negatively affect your credit. It has a long lasting impact that could take you years to recover from, aside from the negative impact in the short term. Although it may seem like the only option now, is to allow your current lender to foreclose on your property; there are alternatives to foreclosure that are much less impactful. If you find yourself falling behind on your mortgage payments, it is important to understand all the options you have. Here are a few reasons why you should look for alternative options.
Late Payment Will Make Your Credit Score Plummet.
Though the exact process varies by state, your lender may give you between 60 to 120 days to become current with your payments. Some lenders may even offer some types of loan modification or a payment restructure plan. However, once you are more than 30 days late on your mortgage payment, your lender will report this late to the credit bureaus. Every month that you are late will negatively impact your credit. It is not uncommon to see up to a 100 score drop in your credit report due only to the mortgage lates.
Long Term Impact.
Once you are 120 days late, a notice of foreclosure may be sent to you and your local clerk’s office. It could also be published in the local newspaper, indicating an auction will take place, as well as when and where. Even if you may find a temporary way to get caught up and pay the late period, it is still a significant negative impact on your credit report. This negative impact can hinder your ability to purchase another home in the future. It depends on the type of new loan, but the impact can last up to seven years from the time of release. And even then, lenders may require a higher down payment or even a higher interest rate.
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Impact on Future Credit Applications.
Aside from the negative impact when you’re looking to buy another house, it will also affect you anytime you are seeking credit. Whether you are trying to buy another home, a new car, a new phone, you will feel the impact. A lower credit score which was caused by a foreclosure could result in higher terms when buying a car, or potentially not even be approved at all. Also, landlords will run a credit check if you apply for a rental house or apartment. Point of the matter is that a foreclosure does not just impact the house or property being foreclosed, it can affect and impact your credit report for months and even years down the road when trying to apply for any type of credit.
In summary, some things in life are unavoidable, but a Foreclosure doesn’t have to be one of them.
You have options that may be better for you. A short sale is another option. Its not a perfect option, but its better than a foreclosure. If you find yourself in this situation, analyze and explore your options before you make a final decision.
