Exploring the Nexus between Foreclosures and Credit Score
Foreclosure has become a harsh reality for millions of Americans, with many still struggling to reverse the damage it caused to their credit score. That explains the increasing number of people seeking “fix my credit” solutions. A foreclosure, on an average, drops the defaulter’s credit score by 85 to 105 points (for FICO score) – the higher the credit score, the graver the impact; individuals with a credit score of 780, for instance, might see their score go down by 140 to 160 points. Although a foreclosure doesn’t wreck the credit score forever, it severely impacts the eligibility of the individual to obtain another mortgage. To help you understand the finer lines of a foreclosure, this post discusses the finer lines of the aftermath.
Duration of Impact
It may take anything from 3 to 7 years for a foreclosure to disappear from the defaulter’s credit report. There is an opening date on the public report, which is also the date of filing the foreclosure at the courthouse; this date is likely to reflect on the defaulter’s credit report for 7 years from the date of disposition . Though the credit score improves during the period, full recovery happens only after the foreclosure is removed from the report.
Impact on Financing
Individuals with foreclosure reflecting on their credit report might are asked to pay approximately 1.5 percent higher interest rate on secured loan, compared to average, unless they are willing to make a down payment of more than 20 percent of the value of the asset to be financed. There is as such no guideline on how soon an individual might get other forms of credit after a foreclosure. FHA-backed loans are easy to get one year after foreclosure, but other types of loans may be available only after the completion of 7 years.
Impact on Employment Opportunities
Foreclosure not only impacts the credit score, but also hurts the employment opportunities as several employers check the credit score of applicants before hiring them. It is a generally perceived that employees with good credit history are more productive and happy. A foreclosure may also be the ground for termination, specifically when the employer is particular about hiring employees with good credit score. People who lose their homes in foreclosure might show a lack of self-worth and self-esteem.
It is important to find out whether the mortgage is a recourse or nonrecourse loan, which depends on the state law. A lender might obtain a deficiency after the foreclosure for recourse loan, which is not possible in a nonrecourse loan. The borrower is personally liable for the debt in case of a recourse loan.
Last Few Words
After a foreclosure, the most important thing an individual needs to do is to repair their credit score. They must not miss out on any payment or default the loan, to prevent further damage to the score. Individuals may try to get smaller loans, as making payments for the new loans will have a positive effect on their credit score. If you have any questions regarding foreclosure, feel free to speak with the experts at RMCN Credit Services, Inc., for a no-obligation free consultation, and result assured you will never have to ask, “how to fix my credit”, again.