The information found in your credit report determines your credit score. According to FICO, your FICO credit score ranges from 300 up to 850, and the higher your FICO score the better your credit is considered to be by lenders. Your credit score helps determine your approval for credit and the interest rate charged for that credit product. A foreclosure impacts your credit score both now and in the future.
FICO Scores
According to FICO, how well you pay your bills accounts for 35 percent of your FICO score and is the largest factor in the calculation of the score; it also has the greatest impact on how high or low your score is. Homeowners often have late payments leading up to a foreclosure, which damages a credit score. According to MSN Money, one 30-day late payment can lower a credit score by as much as 110 points.
Foreclosure Impact
A foreclosure is public record and will appear on your credit report. Once a credit bureau adds the foreclosure to a credit report, the appearance of the foreclosure will negatively impact the score. Thirty-five percent of a score is how well you pay your bills, and a foreclosure shows that you failed to honor a financial obligation. The foreclosure can further drop a credit score anywhere from 85 to 160 points.
Long-Term Impact
The Fair Credit Reporting Act determines how long negative items remain on a credit report. Late payments can remain on your credit report for up to seven years. A foreclosure can also remain on your credit report for up to seven years. Future creditors will be able to see this derogatory information whenever you apply for credit. Also, some employers check credit as part of the hiring process, and a negative credit history may impact your ability to obtain employment.
Recourse Impact
Some states are recourse states, which means the lender has the right to sue for a deficiency balance in that state. Deficiency is the difference between the price the lender sold the home for at auction and the amount still owed on the mortgage loan. If the lender sues and obtains a judgment against you, this judgment will also appear on your credit report as a public record and remain there for up to seven years, further damaging your credit score.
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