Millions of people across the globe are dealing with foreclosure, many more are facing possible foreclosure proceedings and this is going to affect their credit score – and perhaps their marriages as well. Foreclosure does not only leave one shelter less, it also disrupts ones life – and all by messing up ones credit score.
Foreclosures literally destroy credit scores
When creditors report a foreclosure on your account your credit score will plummet like a lead balloon. Foreclosures can drop a credit score by 200 to 300 points! This means that a “good score” of 700 will drop to 400, which is viewed as a horrible credit score. The minimum credit score is usually 340.
How does this affect the individual?
If you have a bad credit score, and depending on how bad it is, you will be denied credit by almost every creditor. You will not be able to secure a credit card and vehicle loans and you will have to pay much higher premiums for your health and other insurance because these payments depend on your credit history. What is even more serious is that if you want to change your job, your potential employer might just decide to pull up your credit score to see if you are trustworthy or how disciplined you are. This is a typical scenario when you apply to a financial institution or organization for a job.
Foreclosure will also make it extremely difficult for you to get another loan for a home if your score is not over 750, which of course will take you ages to accomplish after foreclosure.
Foreclosure can be particularly damaging to a business owner as it becomes evident that the businesses proceedings are not sufficient to repay their loans for business which could additionally critically damage and lower their line of credit.
The good news
However, the good news is that even though a foreclosure will show up on your credit report for as many as 5 to 7 year and make it extremely difficult for you to carry out certain transactions, your credit score is not ruined for the rest of your life. You should concentrate on keeping all your other debts in order and ensure that the creditors report each and every payment on time and correctly to the bureaus. Use your credit cards as much as you can just to be able to report the repayments to the bureaus, this will repair your score a great deal within a couple of years. Your foreclosure is just another item reported on your credit history sheet. Isolate it and it will not damage your score as much as it would if you defaulted on other outstanding debts too.
If you know that you are going into foreclosure, and know that now that you know you will not be able to secure another line of credit unless you repair your score, you should make plans to secure a home for yourself and your family before foreclosure. This will work well if you have a sizable equity in your property.
No one knows your financial situation like you do. So, if you feel that there is hint of a foreclosure on the way, apply for a loan against the equity in your home. Use this money to buy a smaller home somewhere and let the old property go into foreclosure. Then concentrate on rebuilding your score over a period of time. This will reduce the tension brought about by foreclosure.