Will Foreclosure Affect My Credit Score?

Foreclosure Impact on Credit Score

Of course, the best idea is to avoid foreclosure, however, if foreclosure is where you are headed, you may be wondering how it will affect your credit score. Unfortunately, we don’t have the greatest news for you. 

When you are ready to move on and purchase another home, your foreclosure will show up on your credit report and lessen the chances of being able to obtain a mortgage for your purchase. A foreclosure will loom over your credit report for around seven years. Unless, you can file Chapter 7 bankruptcy, foreclosure will haunt your credit. 

After around two years, the foreclosure will start to repair itself on your report, however, it will be a red flag for up to seven years. If you don’t have the time to wait and you don’t want this adverse effect, it is best to avoid foreclosure at all possibilities. You can try to get forgiveness for the debt and tighten up on your budget as well. 

Avoid it All Together

Again, the best outcome is to avoid foreclosure altogether so you don’t have to worry about what it will do to your credit. You could try to settle with your lender by selling your property for less than you owe (short sale). The lender may be willing to negotiate your payoff, so it is worth checking into. 

When you have a stubborn lender that is not responsive to your request, there are other resources for you such as a US approved foreclosure counselor who will deal with your lender on your behalf. In a lot of cases, it is in the lender’s best interest financially to work a deal rather than go through the foreclosure process as this is time consuming and expensive. It is possible the lender will work out a restructure plan by way of a loan modification that will work for both parties involved. 

In some instances, a borrower may find themselves too far behind to restructure and catch up on what they owe their lender. In these cases, a borrower may want to look into their bankruptcy options. If you are eligible for a bankruptcy program, the proceedings will grant what is called a temporary stay. A temporary stay prevents the lender from contacting you and pursuing your debt during the period of the stay. In the case of a Chapter 13 Bankruptcy your debt will be restructured, but you must be sure you can accommodate the plan and pay what was agreed upon between the court and your lender. It is essential to remember in this scenario, you cannot miss future payments because as a result, you will not have this option in the future. 

When neither of these options, restructure with a loan modification or a bankruptcy, will work for you and your situation, you still need to be concerned about your credit score. It’s time to manage your other debt and watch your expenses. 

Pay Attention to All of Your Debts

Debt Relief

Typically, when a foreclosure occurs, the borrower is in a poor financial situation that they are working their way out of. In many cases, people will continue to make their mortgage payments at all costs while letting other bills or expenses go by the weigh side. This can create a larger problem within the financial difficulties. 

Try to pay attention to your other debts as much as you can during your difficulties. If you can, set up payment plans for your debts. Smaller debts due are often easier to negotiate a repayment plan than a larger debt. If paying the bare minimum each month is the best you can do, then keep doing that so your payment status stays on time. 

Explain your situation with your creditors. Discuss with them the circumstances surrounding your difficulty to pay and how important your credit is to you. The more you do this with your other debtors, the better off you will be. In the end, if you can keep as many debts in good standing, the better off your credit report will be, even with a foreclosure. 

Chapter 7 Bankruptcy

There is another option to avoid foreclosure: Chapter 7 Bankruptcy. This option is for borrowers who cannot pay all of their debtors off in full, including your lender. The only way to eliminate all of this debt would be Chapter 7 Bankruptcy. You can check with your local laws to find out your state’s criteria in filing Chapter 7 Bankruptcy. There are professionals who will answer your questions and meet with you. 

Unfortunately, a Chapter 7 Bankruptcy does not necessarily save your home. The Chapter 7 proceedings will not pay your debts off for you, it will just stop your creditors from coming after you for what you owe. Your mortgage is secured by your property, which is considered an asset, so your lender is allowed to take your asset back from you. This will affect your credit score, but it is better than what a foreclosure does to your credit score. 

Bankruptcy does affect your credit score, but you will be relieved from your debt. A foreclosure will not appear on your credit report and your debt will disappear. It will take time to rebuild your credit, but again, it will be better than what a foreclosure does to your credit. 

Chapter 7 is a solution for some, however, it won’t be an option again for you, so be sure to do your research, and ask questions before you decide if it is the right option for you. 

Lessen the Results of Foreclosure Debt

If a Chapter 13 or a Chapter 7 is not the answer for you, or you cannot afford to do either, you may feel like you are out of options. What you need to know: you can sell your home up until the very last minute prior to the foreclosure on your home. You may not make a huge profit, if any, but it is definitely better than a foreclosure. In addition, your lender may pursue you later for any balance you over what you can pay from the sale of your home. 

To avoid foreclosure, selling your home for cash quickly may be the best option for you. We could possibly help you through this process and provide you with a fair cash offer for your home. In turn, you could avoid foreclosure and avoid the negative outcome showing up on your credit. Our team is professional and has a lot of knowledge to share with you throughout the process, so you know you are making an information decision in the end.  

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