Going through a foreclosure can be very stressful, and not knowing the long-term effects of a foreclosure can add even more stress. The impact on your credit score is probably a negative effect of foreclosure that you haven’t considered before. It’s important that you know that a foreclosure will impact your credit after your home has been foreclosed on.
If you are at risk of foreclosure, there are options that can help you avoid foreclosure. Not only will avoiding foreclosure help you stay in your home, but it will also help your credit score stay higher by avoiding having a foreclosure on your credit report. An attorney can work with you to help you explore options to prevent foreclosure.
Joshua Denbeaux is a New Jersey foreclosure attorney dedicated to fighting for consumer rights. If your home is at risk of foreclosure, contact Denbeaux & Denbeaux Law today to learn more about how we may be able to help you.
How Long Does a Foreclosure Stay On Your Credit Score?
A foreclosure will stay on your credit score for seven years from your first missed mortgage payment date. Once the seven-year period has passed, your foreclosure should disappear from your credit report.
If your foreclosure doesn’t disappear from your credit report after seven years, you may need to contact the credit reporting bureaus to have your credit report fixed.
How Does a Foreclosure Impact Your Credit Score?
Your credit score is a numerical measurement to lenders of how reliable you are to repay credit. When you’re applying for credit, creditors look at your credit score to decide whether or not they should lend you money.
Anytime you default on a loan, your credit score will be hurt. Foreclosure can significantly decrease your credit score.
The impact foreclosure will have on your credit score varies for each situation. The higher your credit score before foreclosure, the more foreclosure will impact your credit score. A foreclosure can stay on your credit score for up to 7 years.
If your house is foreclosed on, it will negatively impact your credit score. However, there are things that you can do to help your credit recover from the foreclosure while it’s still on your credit score.
What to Do About Your Credit Score Before Foreclosure
If you’re facing foreclosure, the only way to protect your credit score is to look into options to avoid foreclosure. Preventing foreclosure altogether can help you save your credit score.
One of the most important options when trying to avoid foreclosure is to take a look at the rest of your financial situation. You may need to adjust other credit and credit payments so you can rebuild your credit before foreclosure. Addressing any additional credit and debt issues may free up your finances so you can afford your house payments.
Tips to Improve Your Credit Score After Foreclosure
There are a few different ways that you can work to improve your credit score after foreclosure.
Review Your Credit Report
When a lender reviews your credit score, it counts as an inquiry into your credit, but you can check your credit score three times a year for free without impacting your credit score. Checking your credit report is always a good idea, but it’s especially important after a foreclosure.
You should check for any reporting errors made by lenders. Your lender may have mistakenly reported that you missed a payment when you didn’t, which can hurt your credit.
You should also check your credit report for unfamiliar accounts. Accounts you’re not aware of could be a sign that you’ve been a victim of identity fraud.
Your credit report will list any unpaid balances or delinquent accounts. It’s important to be aware of these, including making sure your foreclosure was correctly reported. Paying off unpaid balances or delinquent accounts is a great place to start when it comes to improving your credit after foreclosure.
Timely Payments
It’s understandable that after going through a foreclosure, you may be tempted to get rid of your credit cards or any other lines of credit that aren’t necessary. It’s important for maintaining your credit to continue to use your credit cards and reestablish a strong payment history after foreclosure.
Having a positive payment history is an important part of your credit score. Using credit cards and paying off your balance whole and on time each month can help your credit score improve.
Low Credit Utilization
Your credit utilization ratio is your monthly revolving credit divided by your revolving credit limit. Your credit utilization ratio is calculated using your minimum required monthly payment.
High credit utilization, when you’re using a lot of your available credit, is considered a sign that you’re struggling to pay your monthly expenses on your current income. Paying down your credit card balances instead of only paying the minimum payment can positively impact your credit score after foreclosure.
Keeping your credit utilization low shows creditors that you’re able to pay your bills each month and can help improve your credit score.
Establish New Credit
Getting new credit can help improve your credit score. With a foreclosure on your credit report, you may have issues qualifying for new credit.
There are credit products specifically designed for individuals with impaired credit. Products like credit builder credit cards or loans and secured credit cards are credit options for which you may be more likely to qualify with a lower credit score.
When looking to establish new credit, you need to be careful of how many lines of credit you apply for. Applying for or opening a lot of lines of credit at once doesn’t look good to lenders because it can look like you need a lot of credit all at once.
Debt Consolidation
Another option to help you reestablish your credit is debt consolidation. Debt consolidation involves transferring existing high-interest debt to other accounts or loans with lower interest rates. It can help you save money throughout the life of the debt.
If you’re struggling to make payments on time or to pay down your balances, using debt consolidation to get a better rate can reduce the total amount you’ll pay and make it easier to manage a single payment instead of multiple payments.
How to Remove Foreclosure From a Credit Report?
A foreclosure should come off your credit report after seven years. You can dispute it with the credit reporting bureaus if it doesn’t come off your credit report after this time.
In some situations, you may be able to have the foreclosure removed from your credit report before seven years have passed, but these cases are rare. Your foreclosure could be erased from your record if your lender goes out of business before the seven-year foreclosure window ends.
You can dispute any errors or inaccurate information on your credit report, which could lead to the foreclosure being removed. If you’re planning to dispute credit report errors, it may be a good idea to review the information with an attorney beforehand to make sure that you have a good claim.
Sometimes a lender may choose to cancel a foreclosure. These instances are rare, but if this happens to you, you can apply to have the foreclosure removed from your credit report.
Talk to a Foreclosure Attorney Today
Facing foreclosure can be scary and overwhelming, and you may not realize how much it can impact you, in addition to losing your home. A foreclosure can stay on your credit report for a long time and impact your ability to get credit or a mortgage in the future.
If you’re facing foreclosure and aren’t sure how much it will impact your life, an attorney can help you through the foreclosure process. An experienced attorney can work with you to explore a variety of options to help you avoid foreclosure or help minimize the impact of foreclosure on your credit score and future.
Contact Joshua Denbeaux today to learn more about how we may be able to help you protect your home and your credit score.
