Credit Impact After Foreclosure

Home foreclosures have long-term consequences for your credit rating, and the impact of a mortgage foreclosure can haunt you for years. Nobody imagines the day when their lender takes back their property. But if you are unable to pay your mortgage loan due to loss of employment or reduced income, lenders will start foreclosure proceedings.

Time Frame

• Credit reports contain detailed information about your credit history -- the good and the bad. After taking back your property, expect your mortgage lender to report the foreclosure to the three major credit bureaus -- Experian, TransUnion and Equifax. Home foreclosures stay on your credit report for seven years.

Effects

• Along with having this information attached to your personal credit report for seven years, your personal credit score will also suffer the consequences of a home foreclosure. The credit score is a three-digit number that lenders use to assess the creditworthiness of an applicant for a loan or credit account. Checking your credit score after the lender reports the foreclosure may reveal a 200- to 300- point drop in the score.

Warning

• A low credit score and foreclosure on your credit report makes it challenging to acquire new lines of credit with lenders. Credit card companies, auto loan lenders and mortgage companies may express hesitation when deciding to approve your loan request.

Considerations

• Even if you do find a lender who approves loans for people with bad credit and foreclosures in their past, these loans will not come with desirable terms. Higher interest rates and other fees are common with bad-credit financing. It's the price you pay for past mistakes. Lenders tend to charge subprime applicants higher rates due to the risk associated with approving these candidates. People with a history of bad credit are more likely to default or walk away from financing commitments, so they are riskier loan candidates in the eyes of lenders.

Expert Insight

• Although you can expect your credit score to take a major hit after losing your home, there is life after foreclosure and you can repair the damage. Bankrate.com recommends rebuilding your credit immediately following the foreclosure and maintaining a good credit history thereafter. Continue to pay remaining bills on time and keep credit card debt low to help your score. Within a few years, you'll likely qualify for another home loan, Jay Zagorsky, a research scientist at Ohio State University, told Bankrate.