Whether we like it or not, our credit score can affect our ability to do certain things in our lives.
While those with good credit won’t have a problem getting a loan for a car or house, people with a poor credit score don’t have it so easy.
So, you’ll need to stay on top of maintaining your score by avoiding scenarios that damage it. One of the biggest hits is from foreclosure.
But, how does foreclosure affect your credit? Don’t worry, we got you covered.
Let’s take a look at everything you need to know.
What Is Foreclosure?
When a homeowner can’t afford to pay their mortgage anymore, they may lose their home entirely back to the lender. This, of course, forces drastic (and often negative) lifestyle changes.
How Can It Hurt My Credit?
To put it simply: significantly.
When you go through a foreclosure, you’re showing that you (for whatever reason) can’t make the agreed payments on your housing loan. Since the amount lent to you is so high, it carries a large penalty.
According to the official FICO website, you’ll experience a 100+ drop in credit from a foreclosure.
And, those with higher credit will experience a bigger hit (similar to how getting a ‘zero’ on an assignment in school hurts your overall grade).
To make matters worse, it can take between three and seven years for your credit to get back up to where it was. It can take even longer if you credit experiences other hits on the road to recovery.
What Can I Do Instead?
Since foreclosing carries so many negative consequences, it’s often the first route people take when they run into financial issues.
Here are other options you may want to consider.
Talk to Your Lender
While this isn’t a guaranteed fix to your issue, it can’t hurt to ask for assistance if times are rough.
If you can prove that you’ll be able to meet the lender’s expectations in the future (such as securing a new job), they may be willing to modify your current payment plan for the time being.
Hold a Pre-Foreclosure Sale
If you sell your home for less than the amount that you still owe on your mortgage, you’ll be able to avoid foreclosure. Keep in mind that selling a home isn’t something that happens overnight, though.
Contact a Foreclosure Attorney
An experienced legal professional can serve as a mediator when discussing your foreclosure.
Unless you have a solid plan already, it’s best to call a foreclosure attorney and see what options are right for you.
Understanding How Does Foreclosure Affect Your Credit Can Seem Difficult
But it doesn’t have to be.
With the above information about the answer to ‘how does foreclosure affect your credit’ in mind, you’ll be well on your way to making sure you avoid this massive pitfall that can hurt your score for years to come.
Want to learn more financial tips to help you out in the future?