Foreclosure Ramifications - What Is The Effect Of Foreclosure On Your Credit Rating?

Foreclosure can adversely affect your credit rating and make you undesirable to lenders, but this is a correctable situation. Seeking assistance from credit repair and debt repayment can help a homeowner rebuild their credit history.

If you know how your credit score is calculated that can help you determine the effect of foreclosure on your credit rating.  The process is long and there are different methods for determining your credit rating and the effect of foreclosure eon your credit rating.  There are some factors that you can take into consideration if you want to estimate your credit score and the effect of foreclosure on your credit rating.

A Simple Credit Rating

The first thing is that if haven’t owned a credit card or had any type of bill in your name before or if you haven’t had to borrow money of any kind, your credit score is going to be zero. Even though this is not considered to be bad credit, it is hard to even get a loan with no credit as it is with bad credit.  There are some companies that may be willing to take a chance on someone with no credit but it is much better to build up your credit score little by little as you go by having cards in your name and living a comfortable and stable life within your means of income.

Effect of Foreclosure and Other Debts

The effect of foreclosure on your credit rating is not the only issue here. Sure, your credit history counts for about a third of your credit score. But unpaid bills and debts on which you have defaulted, such as if you have undergone a foreclosure because of non-payment of your mortgage will hurt your credit score for 7 to 10 years before they are all erased so the effect of foreclosure on your credit rating could last for quite some time into the future.

The good news

Partially your credit score will be affected by the length of your credit history so the effect of foreclosure on your credit rating is not as severe as if you have never had any credit. 

It is a good idea to start building credit as soon as you can. Your score is will improve with time if you have a bank account that stays in the black or does not go over your overdraft limit.  If you have a home you’ve lived in for a while and regular ongoing employment, your credit rating will be better than it is for someone else with a more nomadic life and unstable employment history.

Part of your score will be counted as the money you owe to people, so the effect of foreclosure on your credit rating will be felt here too.  However, even if you are not late on paying your bills, if you have many loans out at one time, it may be possible that you are denied another, so foreclosure does not necessarily make you the lowest of the low in terms of credit score. 

Early Pay Off Helps

However, it is important to only take out the loans you really need and to repay them on time or early if you can as the effect of foreclosure on your credit rating is detrimental.  On the flip side, f you pay off your loans early, you will not only see your credit score rise, you will also save money on paying interest.  This will show up on your credit history.  You will also want to try and keep your money in one place if possible, so if you can avoid foreclosure and negotiate more favorable repayment terms with your current mortgage lender that will help your credit rating a lot. 

The Future

Part of your credit score is based on the new accounts that you have, which may be one secondary effect of foreclosure on your credit rating because you may be refused credit elsewhere to get these new accounts.  Those who calculate your credit rating will look at how many different types of loans you have applied for and how many you have open now.  When you are opening and closing accounts too fast it is not a recommendation.

You need to use your common sense to minimize the effect of foreclosure on your credit rating.  Know your credit score and how it is calculated is going to help you find mistakes on it.  This may help you and your credit score in the future.  You are able to see a copy of your credit report annually for free so you should review this as well as get your credit score to be sure that you are being treated fairly and have the effect of foreclosure on your credit rating make as little difference as possible.