Foreclosure can impact your credit!

You know that a foreclosure on your home can be a big deal when it comes to your credit. But how big of a deal can it be? You might be surprised at how much a foreclosure can impact your credit, and how long it can take to recover, depending on the situation.

Why foreclosure can be so devastating?

Foreclosure can be so devastating because it is related to your payment history. Your payment history is the largest factor affecting your credit score. Before your home goes into foreclosure, there is a good chance that you have missed at least three payments. By the time the foreclosure process is complete, you might have missed even more payments. All of these missed payments are recorded in your credit history and affect your credit score.

The more payments you miss, and the more “important” those accounts are, the bigger the impact on your score. Additionally, reports that your credit can be impacted even more if your credit score is excellent. If your score is 680 and you go through a foreclosure, you could see a drop of 85 to 105 points in your score. A higher score, of 780, could result in a drop of between 140 and 160 points.

Combining foreclosure with another problem, such as a short sale or a bankruptcy on your record, can be even more devastating and result in more difficulty as you attempt to recover your score.
                                 

Improving your credit after a foreclosure

It can take several years to improve your credit after a foreclosure. You might not even be eligible to buy a home for two or three years after the foreclosure is complete. However, you can start working to improve your score.

One of the ways to get started is to have someone with better credit add you as an authorized user to a credit card account. However, for this strategy to be effective, you need to have a close relationship to the other consumer, as a spouse or a child.

You can also start improving your score by getting a secured credit card. You might not be able to qualify for a “regular” credit card right after a foreclosure, so a secured card can help you begin re-establishing your credit. As you make on-time payments, and they are reported to the credit bureaus, you can begin to see improvement. After nine months to a year, you should be able to “upgrade” to an unsecured card that will further help your score.

Other types of small loans, such as a personal loan from your bank or an auto loan, can also help you improve your credit. You need to be prepared to pay higher interest rates, though. As long as your credit is poor, you won’t qualify for the lowest rates. When your score starts to improve, you can take advantage of better offers and lower your interest rates.

Source: Secondary