by M. Shayne Arcilla
Your credit will get hurt in a foreclosure, but it can be rebuilt.
A foreclosure proceeding typically begins after a borrower misses a third monthly payment. At this time, the lender will often give a 30-day grace period, during which the borrower may clear any remaining balances and stop the foreclosure process. In the event that the borrower fails to do so, the lender&rsquo;s attorneys will begin to interfere, and the borrower will then receive a letter of intent to foreclose, which officially starts the long and painful process of foreclosure and the tarnishing of your once pristine credit record.
What&rsquo;s In Your Credit Report?
A credit report consists of your credit score (FICO score) and a summary of your seven-year credit history. It allows interested parties to see how well you manage your finances and if you would be a worthy candidate for loans, employment and housing. The most looked-upon piece of information is your credit score. Credit scores range from 300 to 850, and the higher the better. The formula for calculating your credit score is proprietary information, but we know that it involves the amount of debt
you owe, the age of your existing credit lines and the timeliness of your payments.
Foreclosure on Your Credit Report
Foreclosure information will start to appear on your credit report after 90 days of being delinquent (30 days in some states), and cannot be removed by a short sale or deed-in-lieu unless the homeowner specifically negotiates this condition with the lender, and is subsequently approved. Since your credit history is based on seven years of data, a foreclosure will therefore remain on your credit report for the subsequent seven years. Not only that, but a foreclosure will significantly lower your credit rating, with estimates ranging from 125 to 200 point deductions. Of course, prior to the actual foreclosure event, your credit rating has already taken a significant hit from your delinquent payments, which results in a negative net effect of approximately 240 points. Therefore, a person whose credit rating was 680 will find that their final score after foreclosure will be roughly 440. Ironically, the lower your starting credit rating, the less a foreclosure’s impact will be. It is very difficult to obtain a credit score below 400.
Why Your Credit Score Matters
Life After Foreclosure