If your home goes into foreclosure, it can have far-reaching effects on your life. Not least of these is the effect on your credit report. Foreclosure will always have a negative impact on your credit score, but there are ways to manage the process so that you can still access credit.
Credit Score
Your credit score will be affected throughout the whole process of loan default and foreclosure. As soon as you miss one home payment, it gets reported to the credit agencies, who will note that on your report. Generally speaking, by the time a final foreclosure is reported to the credit agencies, they will have dropped your credit score between 200 and 300 points. In other words, if you had relatively good credit at around 690 points, you'll now have pretty poor credit with a score in the mid-four hundreds.
Length
A foreclosure will remain visible on your report for seven years, just as with any account, but its effect is greatest within the first two years. It's unlikely you'll be able to get another mortgage within that time. About four years out is the average time it takes to get re-approved for a home loan at anything like a competitive interest rate.
Cost of Borrowing
You may still be able to access other types of credit with a foreclosure on your credit report, but with a much lower credit score, the cost of any loans will be much higher. Expect to get an interest rate that's three to five percentage points higher than you might have paid with good credit.
Repairing Your Credit
Make every effort in the wake of foreclosure to ensure that all of your other bills get paid on time, so that there are no other negative reports to the credit agencies. If the foreclosure is the only account on your report, that will look much worse than if it's one bad account alongside several up-to-date ones. You should also begin to use credit again as soon as you are able to demonstrate that you can do so responsibly. This means taking out a credit card and using it for purchases, but ensuring that you pay off the bill in full each month. This will go a long way to help rebuild your damaged credit.
Alternatives
Although it may not be possible for you to get current on your home loan in your present circumstances, call your lender to investigate alternatives to foreclosure, which may have a lesser effect on your credit report. You may be able to negotiate a loan modification to both keep you in your home and avoid the full impact of foreclosure on your report. You might also consider a short sale which, while it does also drop your credit score, will not have the same devastating effect as foreclosure.
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