How Foreclosure Can Affect Your Credit
Having a foreclosure on your credit report can be even more damaging than a bankruptcy. A foreclosure on your credit report will have a negative impact on your credit score for many years. The best way to stop a foreclosure is to get your loan current and keep your credit score intact.
Before you decide on a type of foreclosure, you should understand it’s impact on your credit rating.
- Refinancing: You are paying off your old loan with a new loan that is more favorable to you. This should keep your credit rating intact, besides any late payments.
- Forbearance: The promise to stay up to date on payments and agree to a re-payment plan for any delinquent payments and fees you have incurred. Only late payments should affect your credit score.
- Deed-In-Lieu: This is basically handing your keys over to your lender. Your credit score will be affected the same as if you have a foreclosure. Your credit score could be hit 200-300 points.
- Bankruptcy: Should always be your final option. Your credit score could go down 400 points, and be on your record for years.
- Loan Modification: Allows you to stay in your home. This will not negatively affect your credit score, unless you have late payments.
- Short Sale: Your home is sold for less than you owe the lender. Depending on the number of payments missed, your credit rating may be reduced 50-150 points.
- Discounted Note Purchase: An investor buys your note at a discounted rate. Besides any late payments, it should not impact your credit rating.
You should consult with your attorney or accountant before you take any action to stop foreclosure.