How does foreclosure affect your credit?

Foreclosure is a remedy available to a creditor when you, as a debtor, have failed to faithfully comply with your loan payments. This usually happens on loan or promissory note transactions. The normal practice for loans is for borrowers to use their property as collateral to guarantee the lender that they will make good their promise in making timely payments. Creditors resort to "foreclose" should the debtor fail to comply with his obligation to pay his debt. While foreclosure is a tedious and difficult process for the debtor, those are not the only concerns that the debtor must prepare for. Foreclosure also leaves a negative impression on credit reports.

Foreclosure and Your Credit Report

Foreclosure proceedings can be nasty. Not only will you part with your precious property but you will also have to face with its lasting effect on your credit score. Foreclosures appear on your credit report as "negative entries" and will stay there forever if it were not for a prohibition. The Fair Credit Reporting Act now provides that these types of negative entries can be deleted after seven years upon request from credit reporting bureaus. Because of this negative entry in your credit report, your credit ratings will be dramatically pulled down. Despite your faithful payments after foreclosure, the negative entry and poor credit score will prevent you from loan applications when you badly need it. The negative entry will be a constant reminder for years to come, even when you are exerting earnest efforts to rebuild your credit score. Banks and other financial institutions will be hesitant in lending you money because of that record. Hence, you may be refused your loan application.

 

 

The Dilemma on Credit Report

Entering into foreclosure is like creating a pandemonium on your credit history. Once your credit report reflects foreclosure and your score gets pulled down, you will probably not be able to gain of line of new credit. According to a credit repair expert, you will be identified as high risk and even if you will be eligible for future loans, you will be imposed with higher interest rates, which will plunge you into deeper debt. Lenders base the interest rates they can offer you on your credit score. If you have a low credit score, you will be imposed with higher interest rates. Not only will your credit score be the gauge for interest rates; it also serves as the assessment whether banks and financial institutions will approve your possible line of credit. Your credit report can also affect your chances for employment. If your credit score is poor, employers will be hesitant in hiring you. A poor credit score must not be undermined.

Stopping Foreclosure

If a foreclosure has been stopped, it will reflect on your credit report. However, your method of stopping the foreclosure will be the basis on what will appear on your credit report. For example, if you chose short sales to stop foreclosure on your property and you have been remiss in your payments for more than a month (30 days), the bank will report such fact to the credit bureau. After conducting short sale, most debtors have multiple late payments from one to three months in their credit report. Doug Ison, a foreclosure firm, said when the short sale has been concluded, the general practice for banks would be to report this to the credit reporting bureaus and these bureaus, in turn, will put a mark on your credit report as "paid in full for less than the full amount" or "settled."

 

 

List of Credit Reporting Agencies

The following is a list of three credit reporting agencies that you can reach:

Experian
NCAC
PO Box 9556
Allen TX 75013
Office in TX: 1-888-397-3742
Business: 888-211-0728

Equifax Information Services
P O BOX 740256
Atlanta, GA 30374
Business Line (also has option for Personal): 888-202-4025
Office in GA: 1-800-685-1111
Dispute Fax #: 888-826-0573
Business Phone: 802-304-0364
General Phone: 800-797-6801

TransUnion
Customer Disclosure Center
Trans Union Consumer Relations
PO Box 2000
Chester, PA 19022-2000
Office in PA: 1-800-888-4213
Phone: 888-259-6845 (6am-12 pacific time)
Phone: 800-916-8800 (consumer relations)