©homebasedmerchants - flickr

©homebasedmerchants – flickr

If you are facing foreclosure you may be concerned about the impact it has on your credit score.  It is a question that I hear a lot, when some is concerned with foreclosure.  First one must understand the method of calculating a credit score is proprietary information.  Your credit score number is updated when a creditor makes an inquiry about your credit.  So if there is something lingering from you past it may not have affected your credit score, until there was an inquiry for the latest information about your credit.

How Soon Does Foreclosure Affect Credit
In most cases it can be anywhere between 30 and 90 days from your first late payment.  This can depend on your lender; when they file with the credit report agencies and what state you live in.

Will A Short Sale Or Deed In Lieu get rid of the affect of the foreclosure on ones Credit?
No it will not be reversed or erased by a short sale or deed in lieu of foreclosure.  In rare chances the homeowner may be able to negotiate that it be removed from the credit, but this does not happen very often.

Most people are shocked at how fast their credit score is dropped.  An example of this can be someone who has a score of 700, but is thirty days late on a mortgage payment, dropping their score down.  Also most people that are missing mortgage payments are paying other bills not on time; meaning late payments, collections or even judgments that all lower the score.  So in just a few months you can see a credit score of 700 drop down to 460.

The real problem that most homeowners should be concerned with though is the interest the lenders will want in the future, because of their low credit score.  You may end up paying for your car twice, if you get a high interest rate loan.  Making it nearly impossible to pay it off in a reasonable time or price.

The foreclosure actual point impact on a homeowners credit report is around 175 points.  The biggest impact though is the combination between the foreclosure and late payments on other bills, you can see the score affected by 240-260 points.

Not all is lost though; many of the items affecting the credit report can be removed over time.  It will require persistence, but with time and effort you may be able to 1/3 of all the negative things removed.  Make sure you get a copy of your credit report and look over it; usually people find many items on the report to be incorrect.  This can be easily removed with an inquiry and showing a paid invoice.

Overtime the affect that the foreclosure had on the credit report will fade away.  Just because you were in foreclosure, doesn’t mean you can’t buy a house in the future.  You very well can and may want to after you credit score is cleaned up a bit.  You may have to come up with a higher down payment as well.

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