Thursday, September 6, 2007

How Long Does Bankruptcy or Foreclosure Stay on Your Record?

Consumers with credit issues may wonder how long a bankruptcy and foreclosure stays on credit reports. Both credit issues can drastically bring down your FICO credit score and make it difficult to obtain loan approvals. But bankruptcy and foreclosures eventually fall off your credit report.

Bankruptcy and Credit

    Bankruptcies typically occur when outstanding debts exceed available cash. Some people file bankruptcy as a result of poor budgeting and excess spending. Others file bankruptcy in the aftermath of huge medical bills or loss of employment. Filing bankruptcy can eliminate debts and provide a fresh start to rebuild credit. However, this fresh start comes with a heavy cost to your credit rating, and bankruptcy stays on credit reports for 10 years.

Foreclosures and Credit

    Foreclosures are devastating and involve a bank or mortgage company taking back a property because of default. Expensive mortgage payments, interest-rate increases, divorce, illness or job loss can play a role in home foreclosures. Some mortgage lenders provide mortgage help to avert foreclosures, but if you are unable to keep up with payments, lenders may have no other choice but to foreclose. Losing a home hurts your credit score, and foreclosures appear on credit reports for seven years.

Consequences

    A bankruptcy or foreclosure on your credit file will significantly impact your credit score. According to the Consumer Credit Counseling Service, a bankruptcy can take 100 points or more off a credit score, and AOL Real Estate states that a foreclosure can reduce scores by 200 to 300 points. The actual impact of a bankruptcy or foreclosure is different for each consumer. However, a major drop in credit scoring can halt your opportunity for future credit and loan approvals, or it can result in having to pay an expensive interest rate.

Fixing Credit Problems

    Bankruptcy and foreclosure issues are fixable. Reversing the credit effects doesn't happen overnight. But with time, you can increase your credit score and qualify for credit and loans. After bankruptcy, starting over and applying for new credit is key to undoing the damage. Put down a security deposit and apply for a secured credit card with a bank. Make sure the bank reports account activity to the bureaus, because only reported activity can increase your low score. Pay on time to show creditworthiness. With a foreclosure, paying down remaining debts and paying these debts on time each month can slowly reverse credit damage and rebuild your score.

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