Foreclosure And Your Credit Rating

By Melanie Ullman
Going through foreclosure can be an ordeal for a family. Leaving one’s home and starting all over again can be particularly difficult. Many people obviously know and understand the personal and emotional difficulties that come with a foreclosure. There are also financial hurdles that must be dealt with when a person loses their home to a foreclosure. One of the biggest financial hurdles is repairing your credit.

A foreclosure is when a bank reclaims a home because of failure to pay. This is somewhat like a repossession of a car or other personal property except it involves a home. A foreclosure basically remains on your credit report for seven years like many other negative debts. Having a foreclosure on your credit report will lower your credit score and quite possible ruin your credit if it dips below the credit score of 600. Having a low credit score makes it difficult to obtain credit and if credit is obtained it is usually with high interest rates. Removing a foreclosure from your credit report is not possible since it is a recognized valid debt. The only way to have the foreclosure removed is to wait out the seven years, similar to a bankruptcy, and then contact the major credit bureaus. The other option is to pay off the balance on the foreclosure and contact the credit bureaus to notify them that the debt is paid and should appear as such on your credit report.

Maintaining or reestablishing creditworthiness after a foreclosure will take time, patience and diligence. Paying any bills you currently have on time will help you reestablish your credit. If you have credit cards maintaining a low balance or not using them at all will prevent you from obtaining more debt that will also affect your credit score negatively. It is very important to maintain the positive payment history you have if you have experienced a foreclosure. The positive payment history will enable you to improve your credit score sooner and will prevent your credit score from dipping even further.

The ability to obtain property of any type after a foreclosure will depend upon your credit score. Beware however, as low credit scores do mean higher interest rates and higher payments. It may be advisable to save for any big tickets items or pay for items in full in order to avoid payments you can’t afford and thus more unnecessary negative debt.

A foreclosure is a somber experience that should be used to evaluate the strength of your financial foundation. Hopefully with an honest assessment people who have lost their homes to foreclosure can rebuild their lives from the ground up improving their credit and financial health with time.

This entry was posted on Thursday, August 27th, 2009 at 6:53 am and is filed under How Does Foreclosure Work, What Happens After Foreclosure, home loan foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.