So, does foreclosure affect credit? How?
First, what is a foreclosure?
A foreclosure is when the bank takes back your property, because you have failed to make your mortgage payments. The foreclosure process is typically not initiated you have missed three payments. A written letter will be sent to you notifying you of your mortgage default, and the bank can reposses your home and sell at auction.
What is a credit score?
Years ago, credit reporting entities began evaluating the ability of a person to pay back credit received in a timely fashion. Lenders use that score to determine whether they will lend money and if they do how much and what type of interest will be charged.
The better the score, the more money will be lent, with longer terms and lower interest rates. With lower credit scores, it becomes harder to get credit, and when you do it will be with shorter terms and cost higher interest rates.
A low score will make it hard for a person to make larger purchases such as cars and homes.
Low credit doesn’t only affect a person’s buying power, but credit can be factored into other things such as employment and insurance costs. Business entities look at credit as window into a person’s behavior and habits, and then make assumptions about how that behavior could affect the relationship they could have with the individual.
Credit score is driven by many factors, but one of the biggest factor is how timely a person is with bill paying. This is where foreclosures come into play.
How does foreclosure affect my credit?
So, if bill paying is a large part of determining your credit score. Defaulting on the biggest payment you have will have a huge impact on your credit score. It could have an impact of at least 150 points deducted from your score.
It will also stay on your credit report for 7 years.
This will not prevent you from buying a house during that period of time, but you will pay for it in interest. The increased cost will affect the type and size of house you will be able to afford.
You do have options
If you are unable to get current on your payments, one option could be to sell your house before the foreclosure process begins. Once it begins you will have to find a new place to live, and by selling your house prior to foreclosure, it puts you in control rather than the bank. This alone will help you avoid the stain to your credit.
You can get more information about avoiding foreclosure here.
If you are interested in selling your house quickly for cash without fees, click here: We Buy Houses.