| The impact of foreclosure on your credit score is the | | | | payments. Ironically, the lower your credit score to |
| most frequently asked question we get. The method | | | | start, the less the impact of additional late payments, |
| of calculating a credit score (FICO Score) is | | | | and if you get into the 400's, it's really hard to get much |
| proprietary information. What complicates the issue | | | | lower without almost trying to hurt yourself. Many of |
| even further is that all credit information is calculated | | | | the items on any credit report can be removed over |
| into the individual's credit score as it is entered by | | | | time. It requires persistence and it's estimated that 30% |
| creditors and is only updated whenever there is an | | | | of all items on credit reports are incorrect and can be |
| inquiry. | | | | removed just by an inquiry or showing a paid invoice. |
| The second most asked question is "How soon does | | | | Also the credit score reduction for the foreclosure is |
| the foreclosure go on my credit report?" This depends | | | | reduced as time goes on, until it settles at a minimal |
| on the lender but in the vast majority of cases, as | | | | deduction (50 to 75 points) after a few years. |
| soon as the homeowner is 90 days late (30 days in | | | | It is absolutely untrue that once you have had a |
| some states), the foreclosure info is filed with the | | | | foreclosure you can never buy a home again, as we |
| credit reporting agencies. It will not be "reversed" by a | | | | see people buying a new home within a year of losing |
| short sale or a deed in lieu of foreclosure unless | | | | theirs to foreclosure. There are even homeowners |
| negotiated by the homeowner, and often that doesn't | | | | who legally buy homes within 30 days of their |
| work. | | | | foreclosure using legal techniques with no cash and no |
| So with the foreclosure question, the homeowner's | | | | credit. |
| credit score is first decreased by his late payments. | | | | Foreclosure victims, who want to do conventional |
| Usually, he is also late on other bills because of his | | | | financing in the future, will have to pay a higher interest |
| financial crisis and has additional late payments, | | | | rate (approximately 1 and a half to 2%) unless their |
| collections, or even judgments that all lower his credit | | | | down payment could be 10% to 20% of the purchase |
| score. So if he had his credit score of 680 on a | | | | price. This sizable down payment can often be |
| specific date before he started his personal financial | | | | obtained from friends or family members and carried |
| decline, after he has been served with his foreclosure | | | | as a second mortgage or second deed of trust on the |
| notice or even after the foreclosure is completed; his | | | | property. |
| new score could be 420 or lower. | | | | I am often asked if doing a "Deed in Lieu of |
| He is usually shocked and dismayed, but the real | | | | Foreclosure" or a "Short Sale" with the lender reports |
| problem is how much more interest the lenders want | | | | the same as a foreclosure. Unfortunately, depending |
| because of his low credit score. For example, an auto | | | | on how the lender reports your foreclosure, it could |
| loan could cost a "D" credit customer as much as | | | | stay on your report even if the lender accepts your |
| $13,000 more for the same car as the "A" credit | | | | deed to resolve the foreclosure. The foreclosure |
| buyer! The "D" credit person is penalized for his credit | | | | action does not have to be filed in the courts to be |
| situation since the collateral is the same. | | | | considered a "foreclosure" by the lender. If your lender |
| The foreclosure's actual point impact on an individual's | | | | accepts a "Deed in Lieu Of Foreclosure" or a "Short |
| credit report has recently gotten somewhat higher and | | | | Sale", always them ask for a letter explaining they |
| is estimated to be from 125 to 175 points. The bigger | | | | have accepted your deed in exchange for your home, |
| impact is from the late payments on other bills which | | | | and that they will retract or not put a foreclosure |
| continue to mount up further reducing his credit score.. | | | | notification in your credit record. If they tell you they |
| The net effect is generally considered to be about a | | | | have to, it's not true, ask for a Supervisor until you get |
| 240 - 260 point decline counting his late mortgage | | | | your letter. |