If you are in active foreclosure on your home or other property, you may be worried about the timing of when the foreclosure will hit your credit report. Once it is recorded on your report, it will have a significant impact on your credit score and your ability to borrow from creditors. Unfortunately, there is no set time frame for recording a foreclosure and it can be recorded on your credit report within days of foreclosure proceedings.
The Foreclosure Process
Each state has its own laws and requirements that lenders must abide by in order to foreclose on a property. In general, a lender often allows a grace period for payment of up three weeks. If a payment becomes 30 days overdue, however, it can be reported to the major credit bureaus and show up on your credit report. The impact on your credit score becomes more pronounced when the payment is 60 or 90 days overdue. Foreclosure proceedings often do not begin until payments have not been made for three to six months. They can start earlier, however, if the lender has had no contact from the borrower. If the borrower is in touch, the lender is more likely to work towards an amicable result.
How Payment Delinquencies are Reported
Although a legal foreclosure has a serious impact on your credit score, the score will have been negatively affected long before then. Each overdue payment is reported to the credit bureaus once it becomes more than 30 days overdue. It is reported again at 60 days and at 90 days. The longer the payment has not been paid, the larger the negative impact on your credit score is. By the time an actual foreclosure occurs, you likely have multiple payments overdue. For example, if your last payment was in March and it is now June 1, you will have a 90-day, a 60-day and a 30-day delinquency reported. The combination of these delinquencies will have dropped your credit score significantly---especially if they are still overdue. The overdue payments, even once paid, will remain on your credit report for 7 years.
How a Foreclosure Affects Your Credit Report
Although your delinquent payments will have already dropped your credit score, a foreclosure will make it worse. The algorithms for calculating credit scores are not public, but it is estimated that it can drop your score by 250 points. For example, if your score is 570, which has already been lowered for the delinquent payments, a foreclosure may result in a score of 350. A score below 600 may mean that you are unable to secure a new mortgage or obtain any kind of financing. The foreclosure will remain on your credit report for at least seven years, but the score will begin to rise again after two years as long as you have no new delinquencies.
Avoiding Foreclosure
Because of the serious impact a foreclosure has on your credit score, avoiding it in the first place is the best way to keep your finances healthy. Work with the lender if you get behind and try to establish an alternative repayment schedule or ask that the terms of the mortgage be renegotiated. There are federal programs in place for those who are behind on their mortgages that will help drop your interest rate or required payments. Even if you cannot currently pay your mortgage, always keep in touch with the lender to give yourself more time before foreclosure proceedings are started.
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