How a Foreclosure is Reported to the Credit Bureaus

The biggest worry of going through a foreclosure is, of course, losing your home. But you should also be concerned about the effect on your credit. Foreclosure can be very hard on your credit score and a note of the foreclosure remains on your credit report for seven years.

Lender Reporting

Your mortgage account is reflected on your credit report from the moment you take out the loan. Your monthly payment history is noted on your report via regular reports that your mortgage lender makes to the credit bureaus. When you begin to fall behind on your loan, this will appear on your report, and then your lender will also report the foreclosure action to the bureaus.

Public Record

Even if you can persuade your lender not to report your foreclosure to the bureaus, it may still appear on your report as a matter of public record. If you live in a judicial foreclosure state, your court proceeding is a public record. If you live in a nonjudicial foreclosure state, the notice of default and then the notice of sale must be lodged at the county recorder's office. All of these public records can be accessed by the credit bureaus and the information added to your credit report.

Effects of Foreclosure

Depending on the level of your score before the foreclosure, the action can lower your credit score between 85 and 160 points. The higher your score previously, the bigger the fall. It's likely that a lot of damage has already been done to your score, even before the foreclosure. Defaulting on your mortgage payments for up to 90 days, as is common with foreclosure cases, will have almost as severe an effect on your score as the foreclosure itself.

Alternatives

Some homeowners avoid foreclosure through either a short sale or a loan modification, believing these alternatives may be better for their credit. In fact both of these events will also be reported on your credit report by your lender. A short sale can result in a drop in your credit score equal to that of a foreclosure, depending on your situation and your previous credit history. A loan modification will also show up on your report as an alteration of your mortgage account "not as originally agreed."