Can Foreclosure affect our Credit Score?
If you are unable to repay back your mortgage, they your property might get foreclosed. If you are foreclosed, then your property will be taken away by the lender of the mortgage and it might be sold off at an auction to recover the unpaid mortgage amount. In case the sale price is lesser than the amount you owe, then you will have to pay the deficiency amount.
Ways Foreclosure can affect your Credit Score
Along with losing your home due to foreclosure, it can also affect your credit score drastically. It might take a few months for you to recover your finance and get back on track. It might even make you homeless as you might not be able to afford an alternative home. Though your credit score will come down, this can be revived as credit scores are dependent on credit history which are dependent on other aspects as well along with foreclosure. This indicates that if you had good credit score before you were affected by foreclosure, the damage might not be too severe after a foreclosure.
Another concern area related to foreclosure affecting the credit score is that it will also affect your ability to get credit or loan at a lower interest rate. This is because foreclosure will lead to lower credit score which in turn will lead to inability to get loan of your choice. To recover from this, you need to rebuild your credit score after foreclosure. Under poor financial markets you might not be approved for another credit or mortgage. Apart from this, you might be able to get a job of your choice due to poor credit score.
Saving the Credit Score after a Foreclosure
You credit score might drop by 250 points if you have to face a foreclosure. It also remains on your credit report for about a period of 7 years. Thus it becomes very important that you save yourself from foreclosure and opt for a loss mitigation plan from your lender which will help you to retain your home as well as save your credit score from dropping severely. Also, as foreclosure affects the credit score in the initial period, it can start look good once you start rebuilding your credit score and by about 4 years you can apply for a new mortgage after foreclosure and at a good interest rate.
A few tips to save your credit score after foreclosure are:
- Get your finance right and prepare a budget to analyze your savings and spending. Start keeping some amount aside to clear the foreclosure and avoid unnecessary expenditures.
- Keep track of your bills and pay them on time. Also pay your debts promptly so that positive reports are sent to the credit bureaus which in turn will help you in improving your credit score. Seek the assistance of a credit counselor to plan your debts as huge debts will affect your credit score and reduce your points.
- Apply and get a credit card to make payment for small expenditures. However, ensure that there is not balance every month. This will help in showcasing your ability to handle credit and in turn help in improvement of the credit score.
Thus even if foreclosure can affect your credit score, you can overcome it by managing your finance intelligently and reviving your credit score. This can be done by just planning a budget, making your payments on time and avoiding unnecessary spending.
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