How Will a Foreclosure Affect Your Credit Report?

By Michael M Masterson

The two most frequently asked questions involving credit and credit reports are as follows:

1) How does a bankruptcy affect my credit report?

2) How does foreclosure affect my credit report?

It breaks down like so. If a creditor sees your entire report, they will evaluate it as a whole. However, most will only see your FICO score rather than your report. A FICO score is a revealing indicator of whether or not you will pay your bills. Problem is, the calculations involved and how you're assigned a FICO score is completely unknown. Your score can change at any time and such a change can be caused by anything, including a simple inquiry.

Failure to make a loan payment for 30 to 90 days will result in a decrease of your FICO score. If such delinquencies result in a lender's foreclosure, your FICO score will most definitely decrease. With each subsequent step of the process, your score will suffer. All of it-the late payments, the defaults, the auctions will all contribute to the decrease of your FICO credit score.

How will a low FICO score affect you? First off, you will probably be denied credit for seven years. If you are given credit, you will have to pay a much higher interest rate than most. For example, you may have to pay $3000 in interest if you buy a new car. This is harsh reality of the matter.

But it's not known how much a foreclosure will affect your FICO credit score. There is some sort of science and reason to it but the actual formula is as guarded as Tom Cruise's ties to Scientology. Most experts agree though that a foreclosure will damage your FICO score, decreasing it anywhere from 100-150 points.

A damaged FICO score or not, there is always a light at the end of the tunnel. In a few years, you'll be able to buy a house. Though you will be forced to pay a higher interest rate and don't be shocked if you have to make a larger down payment than others. Nevertheless, time is on your side. The longer you wait the higher your score will be. Reestablish and improve the credit you have. Credit reports operate on a 24-month cycle so with two years time, you should be able to improve your score and get yourself back on track.

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