Foreclosure & Credit Reporting

As if dealing with losing a home isn't bad enough, foreclosure also turns an excellent credit score to average or worse. You cannot hide a foreclosure, and just about any creditor will frown upon this incident when reviewing a credit application. However, you almost always have options that affect your credit less than a foreclosure and some can even save your home.

Points it Costs

A foreclosure always costs points on your credit score, but your rating before the foreclosure is just as important in determining how many points you lose. Higher scores usually experience a bigger drop. Fair Isaac Corp., which developed the credit scoring system, said in 2010 that a score of 780 would likely drop to 620 to 640 and a score of 680 would fall to 575 to 595, according to CNNMoney's Les Christie.

Considerations

Foreclosure is worse than missing a few payments and better for your score than a bankruptcy, but this does not mean it improves your chances at acquiring another mortgage later on in life. Mortgage providers usually consider a foreclosure worse than a bankruptcy that does not include a home, according to John W. Schoen of MSNBC. Fortunately, the credit agencies only report a foreclosure for seven years, while bankruptcies can stay for 10.

Misconception

No credit repair company can remove a foreclosure from your record through any legal means. The only way to expunge a foreclosure from your record is to wait out the seven years. At the end of the seven-year limit, you can dispute the foreclosure if it does not automatically fall off your report. Keep in mind that each passing year curtails the importance of your foreclosure, so it is at its weakest during year 7.

Tip

Try to get through to your lender's loss mitigation team -- most mortgage providers do not let their customers talk to loss mitigation until the borrower becomes several months late on his payments. They might be able to offer a plan or advice to get your mortgage current, such as a modification of your loan. The Federal Housing Administration might approve you for an interest-free loan that does not need to be paid until you sell the house or completely pay off the mortgage.