Despite reported upswings in the housing market, foreclosures continue to be a huge problem for residents of the US. In March of 2013 alone, 1 in every 859 homes in the US received a foreclosure filing. The RealtyTrac database lists over 1.4 million homes that are currently in foreclosure. That’s well over a million families struggling with the devastation of losing their homes.
No matter the circumstances that put you there, having to deal with a foreclosure is one of the most stressful situations anyone can imagine. The stress of losing a home is only compounded by the damage foreclosures do to your ability to get back on your feet after a financial setback. After the foreclosure is over with, the consequences continue in the form of lower credit scores and higher costs for everything from loans to insurance – and that’s assuming you can still qualify.
How does a foreclosure affect your credit score?
Regarding credit score penalties, you can expect to lose anywhere from 85-160 points on your credit score when the foreclosure first hits your reports. If you had good credit to start with, expect a much sharper drop than if your credit was already poor or average. In most cases, you will not be able to qualify for new credit immediately after a foreclosure. You may also see the interest rates on your current credit cards rise as a result of the drop.
How does a short sale affect your credit score?
In the past, the damage of foreclosures could be reduced by completing a short sale or a deed-in-lieu of foreclosure rather than going through with an “official” foreclosure proceeding. However, the credit bureaus have since started penalizing all three of these situations identically. The only potential benefit to a short sale or deed-in-lieu is the possibility of qualifying for a new mortgage shortly thereafter. However, the steep declines in your credit scores may make this impossible.
Can I buy a house after foreclosure?
As far as buying a new house after foreclosure, you won’t be able to qualify for a new mortgage for at least 2 years and possibly longer. This is the case even if you have the financial means to pay for a less expensive home. Once you do qualify for a mortgage, expect to have to pay more in interest and fees. Additionally, you’ll most likely be expected to put a much higher amount towards the down payment – somewhere in the area of 20% or more.
How long does a foreclosure stay on your credit report?
A foreclosure stays on your credit report for 7 years. That means it will negatively affect your credit scores for 7 years, but less and less as time goes on.
How long does a short sale stay on your credit report?
As mentioned above, short sales aren’t treated any differently from foreclosures, so they will stay on your credit report for 7 years as well.
What are some other ways that foreclosures can cost you?
Many people don’t realize the different ways your credit score impacts your everyday life. Along with access to loans or credit cards, your credit score is often used:
- As part of the hiring process – to weed out candidates with low scores
- To set insurance rates – to charge higher rates for poor credit or to disqualify people entirely
- To get approval for utilities – to charge hefty deposit fees to establish service
- For other services – for services such as cable and internet, you may not even qualify for service if your score is too low
It is also very common for landlords to use credit reports when screening potential renters. Landlords immediately weed out people with low credit scores as a potential risk for nonpayment of rent. This can make it almost impossible to find a good home or apartment in a safe neighborhood.
Having a foreclosure can make it even harder to find a place to live. Many people don’t find that out until they’re already in the process of trying to find a home or an apartment. Large deposits will likely be required to establish necessities such as electricity, water, and garbage collection, which makes it even more difficult to start over and begin rebuilding your life after foreclosure.
Can a foreclosure be removed from your credit report?
Yes, it is possible to have a foreclosure removed from your credit reports. The mistakes made by lenders have been well documented in foreclosure cases, with some banks even having to pay restitution to people whose foreclosures were mismanaged. Many errors have occurred in foreclosure cases, including the “rubber stamping” of foreclosure documents and lack of proper procedure. For reasons such as those, it may be possible to have your foreclosure removed from your credit report permanently.
Another common reason that foreclosures are removed from credit reports is a lack of available records. This most often occurs when the bank who owned the mortgage is no longer in business. In many instances, mortgages and foreclosures were sold from one bank to the next, leaving a snarl of paperwork that made it impossible for people to pay their mortgage bills on time.
These sales also made it difficult for some banks to keep accurate records, and if the bank listed on your credit report is no longer in business, they will not be able to verify the foreclosure. Any information on your credit file that cannot be verified must be removed.
How do I dispute a foreclosure on my credit report?
Removing foreclosures requires filing separate disputes with all three credit bureaus. Because of the way the credit bureaus work, you have to word your disputes carefully to avoid having it deemed “frivolous.” While the FCRA offers protections for consumers, credit bureaus have the right to ignore anyone that they feel is abusing the law.
The credit bureaus decide whether or not a dispute is frivolous solely based on your communication and any proof that you can provide. This is one of the reasons that many people look for professional assistance when it comes to repairing their credit and removing foreclosures.
If you need to remove a foreclosure from your credit report, we highly recommend working with Lexington Law. We believe that Lexington Law’s experts will give you the best chance at getting it removed.
Foreclosure Deleted from My Credit Report:
My credit scores have dramatically improved since there are no longer any negative accounts on my credit report. Here is a snap shot of my credit scores since I signed up with Lexington Law:
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