While many financial experts would agree that foreclosing upon your home should never be your first choice for confronting financial challenges, it is a responsible and viable option in many cases. Still, foreclosure can have real and long-term effects on your credit score and borrowing potential. Understanding how foreclosure may impact your credit report is an important aspect of making an informed decision on whether or not pursuing foreclosure is the best option for you and your family.
Financial Samurai discusses the consequences of foreclosure, and explains how the process can impact your credit score over time. As far as credit reporting agencies are concerned, foreclosure is generally regarded as failing to fulfill your obligation to settle your debts with your mortgage lender. Consequently, foreclosing upon a property can leave a significantly negative mark on your credit rating.
Interestingly, you may experience a larger hit to your credit score if you maintained a fairly high rating prior to pursuing foreclosure. For instance, your credit score may drop by 140 to 160 points if your credit rating previously stood at around 780. If your score was 680, however, it may drop by between 85 to 105 points.
It is also important to keep in mind that your credit report may reflect your foreclosure for around seven years. Generally, your credit score will begin to improve during this seven-year period; however, it may take an extended amount of time for it to rebound completely. Of course, other factors, such as other forms of unpaid debts, can play a role in how foreclosure impacts your credit score as well. Therefore, this information is only intended to be educational in nature and cannot serve as legal advice.
