How Will A Foreclosure Affect My Credit Report?
When it comes to credit and credit reports the two most often asked questions are:
1) How does a bankruptcy affect my credit report?
2) How does a foreclosure affect my credit report?
The reality is that a potential creditor will evaluate your credit report in total, if they see your credit report at all.
In all likelihood the only thing they will see is your credit “FICO” score. A FICO score is a way to determine the likelihood that you will pay your bills. FICO scoring methodology is shrouded in mystery. Additionally, the score can change at any minute as information about you is inputted into the computer. Even an inquiry can change your overall FICO score.
If you fail to pay a mortgage or loan payment for 30 to 90 days, that late pay will decrease your FICO score. If the lender begins the foreclosure process your FICO score will again suffer. Each step of the process will lower your FICO score more. The late pays, the Notice of Default, the judgments, the Notice of Sale and the auction will all lower your FICO score.
Make no mistake about it: a low FICO score will cost you in two important ways. One is that you will probably be denied credit for the next 7 years.
The second way is that if you are granted credit, you WILL pay a lot more in interest because of that score. I know it is hard to believe that a score can cost you but it could cost you $3000 or more on a new car purchase.
The mystery is just how much the foreclosure will hurt you FICO score. There is a science to it but the formula is guarded better then the KFC recipe.
Having said that, many experts feel that a foreclosure will decrease your FICO score anywhere from -100 points up to -150 points.
There is life after a foreclosure. You will probably be able to buy a home after a year or two. You will have to pay a higher interest rate and be prepared to put down a larger down payment then others might.
The longer you wait the better your FICO score should be. Of course you need to re-establish credit and improve the credit you do have. The credit report works on a 24-month schedule so by being diligent, you should be able to improve your credit in two years anyway.
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