How does foreclosure effect my credit rating?

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How does foreclosure effect my credit rating?

Asked on March 9, 2011 under Real Estate Law, California

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

A foreclosure is one of the most credit-damaging notations that can appear on a credit report.  It typically causes a credit score to drop by approximately 200 points; a fairly substantial decrease.  Additionally, a foreclosure can remain on a credit report for 7 years.  This can make obtaining a loan, or at least obtaining a loan for a lower interest rate, difficult if not impossible.  The good news is that the negative impact of a foreclosure on a credit score diminishes over time.  A FICO (credit) score can begin to go back up in as little as 2 years assuming that all other credit obligations are paid in a timely fashion.  In fact, the FHA (Federal Housing Administration) will allow a new mortgage to be approved if a past foreclosure was more than 5 years old.

Note:  A short sale or deed in lieu will have much the same effect on a credit score.


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