A foreclosure could damage your credit for years, making it difficult or impossible to get competitive rates on credit cards and loans. However, the impact of the foreclosure on your credit will lessen over time, according to the Federal Trade Commission.
Time Frame
Foreclosure information can be reported on your credit report for seven years, according to the Federal Trade Commission. The FTC reports that the information cannot be removed sooner, despite the claims of credit repair firms. Foreclosure information can be removed from a credit report only it is incorrect or has become outdated, the FTC reports.
Effects
A foreclosure could cause a dramatic drop in your credit score, according to Bankrate. The site reports that your credit score could drop by more than 100 points if you had good credit before the foreclosure.
Considerations
Foreclosure also makes it difficult to qualify for a new mortgage. CNN reported in 2010 that people who file for foreclosure likely will not qualify for a new mortgage for two to five years -- and that's if their foreclosure was caused by joblessness, illness or similar crisis. Those with good finances who simply walk away in a so-called "strategic default" may have to wait up to seven or eight years for a new mortgage, according to CNN. Strategic defaults became popular after many houses dramatically lost value during a U.S. housing bust and recession starting around 2007. Some people walked away rather than continue paying for a house that was worth less than the balance on the loan.
Expert Insight
Foreclosure can be devastating, but you can survive it and get on with your life, according to the Federal Home Loan Mortgage Corporation, also known as Freddie Mac. The agency says people going through foreclosure likely will have many options for finding a place to rent, even with damaged credit scores. Freddie Mac reported in 2010 that in some instances it was possible to remain in a home after foreclosure by entering into a lease agreement with the lender.
Prevention/Solution
Avoid having a foreclosure placed on your credit report by making your mortgage payments on time -- or by selling or leasing the property before you start falling behind on payments.
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