How Is a Foreclosure Reported on Your Credit?

Losing a home to foreclosure is an experience that many individuals would prefer to keep private. Unfortunately, if your mortgage lender seizes your property, it inserts a record of the foreclosure into your credit history. This allows other lenders and creditors to see that you lost your home due to nonpayment whenever they review your credit report. Both your lender and your local court system play a role in reporting your foreclosure to the credit bureaus.

Mortgage Trade Line

The original record of your mortgage appears on your credit report as a mortgage trade line. The lender reports each payment that you make or miss to the credit bureaus, along with the date you originally opened the account and how much you owe on the loan. As you begin missing payments prior to the foreclosure, the missed payments appear on your credit report. When the lender initiates foreclosure activity, it will note this fact within its mortgage trade line as well. Each mortgage lender possesses its own set of guidelines for reporting foreclosure activity. Thus, the exact notation within your mortgage trade line noting a foreclosure may vary depending on your lender.

Public Record

After the foreclosure process is complete, your county courthouse files documents noting that the incident took place in the county's public record database. Public records are viewable by anyone who wishes to review them. Representatives from the credit bureaus frequently review public records online in order to update consumer credit reports accordingly.

Once updated, a separate trade line noting the foreclosure will appear within a section of your credit report reserved for negative public records. This does not erase the mortgage lender's original report noting the foreclosure within its own trade line. Rather, evidence of the foreclosure appears within the mortgage lender's trade line and the public records section of your report.

Time Frame

Although foreclosure records remain part of the public records database indefinitely, evidence of the event on your credit report only remains valid for a limited period of time. The Fair Credit Reporting Act limits the credit bureaus to reporting foreclosures for no more than seven years from the date the foreclosure took place. After seven years, both the public record of the foreclosure and the mortgage lender's original trade line will disappear from your credit report.

Foreclosure Effects

Once your credit report reflects a foreclosure, you become a much higher default risk to future lenders and can expect to pay higher interests rates and deposits for goods and services. The impact that a foreclosure record has on your credit rating diminishes with time. The Fair Isaac Corp.'s FICO credit scoring formula considers incidents that took place within the past two years of the greatest relevance when determining your credit score. Because of this, you can improve your credit after foreclosure even if the evidence of the foreclosure still appears within your credit history.