Foreclosure and Credit Score – Critical Considerations

Many questions arise  when faced with a looming foreclosure and the possible loss of your house. An important one is. How will all this affect my ability to buy another house again in the future? “I keep hearing about short sales is that a better solution?”

Before considering  the short sale of your home, you need to ask, “how will my credit be impacted?”

“Will I always have a bad credit score?”

Foreclosure and Credit Score  are linked, homeowners have indeed hurt their credit by missing  payments. Unfortunately, the higher the credit score you start with, the bigger hit your score will take. This has nothing to do with your creditworthiness, but with how the credit scoring system works. And honestly, foreclosure is definitely going to have a negative impact on your credit score, even doing a short sale will. 

What affects your credit score

Payments that are late by 30 to 120 days or more can result in a deduction of from 20 to 250 points from your credit score.  However, when the short sale is finalized and recorded on your credit report as “settled in full for less than the full amount,” any further reporting of late payments to the credit bureaus is halted. Therefore, your credit score will recover much more quickly if it was relatively high before those late payments began appearing on your credit report.

In addition to being late on their mortgage payments, many homeowners are late paying other bills as well. However, because the short sale can be a lengthy process, homeowners can make a little headway becoming current with these other payments. They aren’t required to pay their mortgage while the short sale is in progress.

Foreclosure and Credit score

There are definite strategies that homeowners can implement when faced with foreclosure without suffering the more severe consequences of a bankruptcy. When  looking to protecting your credit score as much as possible, a short sale may be your best plan of action, it simply is less damaging to your credit than defaulting. It is imperative in this day and age to pursue having a good credit score as soon as possible, to reduce debt and to properly manage your finances.

This will help you in many ways, from saving money on insurance (yes insurance companies look at your score ) to finding a job, buying anything on credit, and of course to buying your next home. You should also read my other article about maintaining and fixing your credit score,  6 Sure-Fire Ways to Improve Your Credit Report.

Find out whether your mortgage will qualify for a Utah short sale call us at 801-718-6156, or if you prefer, fill out the form on the right. We can usually get back to you within 24 hours.

Photo Credit: Flickr

Tagged with: credit • credit report • credit score • debt • Foreclosure • foreclosure and credit score • Short Sale

Filed under: Utah Foreclosures • Utah Short Sales

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