Your credit score influences everything from your ability to rent an apartment to your ability to obtain a home loan. Creditors and lenders will examine your credit score and credit report to determine your creditworthiness. If you are approved, the lower your interest rate may be if your credit score is higher and there are fewer red flags on your credit report.
Having a foreclosure on your credit report can make it difficult to achieve your financial goals. It takes time and patience to remove a foreclosure. In some cases, you may be able to have a foreclosure removed from your credit report. If you find yourself in one of these situations, you must take action to have it removed.
What is a foreclosure?
When a mortgage servicer takes over the property of a home because the borrower is no longer able or willing to repay the loan, this is referred to as a foreclosure. By using this legal process to terminate the owner's right to the property, the lender is protecting its interests. Typically, the property is then auctioned off. The sale proceeds are used to repay the original mortgage loan.
Many foreclosures occurred as a result of the 2008 housing crisis when borrowers across the country were unable to pay their mortgages. Lenders eventually took possession of these properties through the foreclosure process.
Having your home foreclosed on is a difficult event. However, this is not a permanent situation, and it is possible to avoid foreclosure and purchase a new home in the future.
How foreclosure affects your credit score
When a foreclosure is listed on your credit report, it means that you were late on a payment at some point. Your payment history has the most influence on your credit score. As a result, lenders believe you are less likely to repay them if they lend to you. Depending on how recent the late payment was, your credit score could drop by more than 100 points.
In scoring systems such as FICO and VantageScore, foreclosures are classified as derogatory events. The actual impact on credit scores will vary depending on the scoring system and the consumer. In any case, a foreclosure can be difficult.
In some cases, you may be ineligible for a Fannie Mae or Freddie Mac-backed home loan for several years after a foreclosure. This required waiting period could keep you out of the housing market for up to seven years. Even if your credit score improves during this time, you must still comply with the penalty period.
Foreclosures can appear on your credit report for up to seven years. The good news is that the negative impact will become less severe over time.
Does a Foreclosure fall off my credit report?
A foreclosure, like other negative marks, will not remain on your credit report indefinitely. A foreclosure can be removed seven years after the date of the first missed payment that resulted in its default. In credit reporting, this is referred to as the date of first delinquency (DoFD).
As a result, a foreclosure that has been properly reported will be removed no later than seven years from the DoFD. The deletion process is automatic, and the credit bureaus are not notified. The exception is that if there was an error in the foreclosure reporting, you must go through the dispute process to alert the credit bureaus.
What about a short sale?
A short sale occurs when the lender is willing to accept less than the amount still owed on a mortgage loan through the sale of the property. For a short sale to take place, two things must happen:
1.The borrower can’t catch up on their mortgage payments because they’re so far behind
2.The house is worth must less than the remaining balance on the mortgage due to the current housing market condition
Short sales will be used by lenders to avoid foreclosure. If you receive permission from your lender to sell your home for less than what you owe, how it is reported on your credit report is up to your lender. A short sale is typically treated as a foreclosure and remains on your credit report for seven years.
3 Steps to Removing a Foreclosure from your Credit Report
A foreclosure can be removed from your report for several reasons including:
- It is over seven years since the DoFD
- The lender is no longer in business
- A voluntary dismissal occurred
- Inaccurate information on the foreclosure was provided by the servicer.
If one of these scenarios applies to you, you can take action to have the foreclosure removed. The three steps involved in the process are listed below.
STEP 1: FIND THE INFORMATION THAT’S INACCURATE ON YOUR REPORT
Transunion,
Experian, and
Equifax are the three major credit reporting agencies. You will need to look over all three of your credit reports. To find the inaccuracies, look for the foreclosure entry on these reports. You should look at the balance, date opened, account number, and lender name, among other things.
Make a note of any discrepancies you find. You should then file a dispute with all three bureaus. They must verify that the entry is correct, and if it is not, it must be updated to an accurate status or removed from your report within 30 days. When submitting your dispute letter, make sure to include a reference to the
Fair Credit Reporting Act (FCRA), which requires only accurate information to be reported by the credit bureaus.
STEP 2: DISPUTE THE INACCURACIES WITH THE LENDER
If your dispute with the credit bureaus does not result in the foreclosure being removed, your next step should be to contact the lender. Write a letter to the lender stating that the foreclosure entry on your credit report is incorrect. Make a request that it be removed from your report.
In your letter, state that you will take further action if the foreclosure is not removed within 30 days. Please send any supporting documentation you may have.
STEP 3: WORK WITH A PROFESSIONAL FOR HELP
Consider hiring a
credit repair company if you are short on time or prefer to have an expert work on your behalf. They can negotiate with the credit bureaus and lender(s) on your behalf to have a foreclosure removed from your credit report. A reputable
credit repair company works with people just like you on a regular basis, so they are well-versed in the process. Furthermore, they may be able to provide guidance or help improve your credit score in other ways.
RELATED ARTICLES:
Comments
Post a Comment