Foreclosures raise a lot of questions. Some are personal. Where will I live? What can I do to keep my children in the same schools? Some questions are more universal. How will a foreclosure affect my credit score? Is there anything that can be done to prevent credit score damage? While no solution is one-size fits all, these general answers can provide guidance for the universal questions that come with foreclosure.
Foreclosures Cause a Lasting Mark
Foreclosures leave black marks on your credit. How many points it will take off varies with other considerations, such as your credit score going into the foreclosure. People with a foreclosure on their credit will face increased difficulty in getting finances of any sort. They may have to pay higher interest rates for loans that they do secure.
Worse than the blow your credit takes is how long the black mark lasts. Unlike other bills which can drop off your credit score in as little as three years, foreclosures will stay a full seven. Even though many people are in a better financial position even a few years after a foreclosure, the difficulty acquiring a loan lingers. These circumstances make it difficult to buy a house or car or obtain a loan to start or expand a business. In a single sentence: a foreclosure will drastically lower your credit score.
Protect Your Credit Score at All Costs
Given that a foreclosure has such severe repercussions and that there are few options to help, the best solution is to protect your credit score. An ounce of prevention is worth a pound of cure. Of course, when foreclosure looms it can be assumed that most options have been exhausted. One option is to quickly sell the home. Real estate investors have the free capital to move on good opportunities, so begin with these firms. You can sell the house before foreclosure starts and protect your credit score.
Unfortunately, it’s not always possible to keep the home you wanted to buy. The question how to make the best of a bad situation. Staying in the home until foreclosure puts a heavy mark on your credit score for the next seven years. Quickly selling your home to a real estate investor protects your credit. In a few years you could be ready to try home ownership again, and if you avoided foreclosure your credit score will be too.
How to Repair Damaged Credit
People trying to rebuild their credit after a foreclosure face an uphill battle. The first thing they have to do is get on top of their monthly bills. Paying your bills on time is the best way to rebuild your credit. You can raise it even more by focusing on paying down debts. Reducing credit card debt to a few hundred dollars and making consistent monthly payments will increase your debt. In fact, keeping a low balance will increase your credit score even more than paying your debts off. Paying bills on time every month is the best thing you can do for your credit.
Other than making steady payments and minimizing debt, there’s nothing else that really works to fix credit. Time heals all wounds. Many people with a foreclosure on their credit score end up saving money and waiting out their seven-year sentence. Once the foreclosure drops off their credit score can rebound. That’s when they can try to buy a home again.