In the third-quarter of 2009, one in every 136 homes was in foreclosure, according to RealtyTrac. Foreclosure means more than just losing your home. Your credit rating takes a dive, as well. A poor credit rating can affect your life in ways other than making loans more expensive, so you should do whatever it takes to prevent foreclosure.
Identification
If a bank repossesses your home, usually called a foreclosure, your credit rating takes a huge dive. The number of points depends on your score before the foreclosure occurs, but it is possible to lose 160 points if you had a rating of 780 and more than 200 points for higher scores in the FICO scoring system, according to Les Christie of CNN. Lenders might use different formulas but probably factor in the same variables, such as payment history, and pull your report from the same three national credit reporting bureaus.
Time Frame
Once the bank forces foreclosure, the account stays on your record for seven years, according to Privacy Matters. However, the impact of a foreclosure begins the day after the foreclosure hits your credit report. You can start counteracting the effects of foreclosure immediately by paying other debts on time, eliminating debt, adding new accounts and paying those bills on time.
Other Effects
Poor credit in general makes your life more expensive. For example, people with average credit pay about $115 more for auto insurance than someone with great credit and an extra $60 a year on home insurance, according to Christie. You may have a difficult time finding a new dwelling after foreclosure because landlords usually run credit checks on potential tenants.
Considerations
Foreclosure is bad for the bank and you, so mortgage lenders usually want to help you avoid foreclosure. If you talk to the bank as soon as you miss a payment, it will probably offer counseling or options to get your mortgage back on track. For instance, the government runs the Making Home Affordable program, which offers banks cash incentives to modify mortgages for consumers who cannot afford their home loans.
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