Growing Problem
Nearly 740,000 U.S. homes entered the foreclosure process in the second quarter of 2008, according to figures released by RealtyTrac and published by the BBC. RealtyTrac says one in every 171 households in the United States was in the process of losing their home in 2008.
Damaging Effects
Privacy Matters.com says a foreclosure occurs when a bank claims ownership of a property when the owner either gets behind or stops making mortgage payments. A bank will typically start the foreclosure process after three missed payments. The damaging effects of a foreclosure on your credit report may be second only to bankruptcy.
Credit Score
According to Mortgage Fit.com, a home foreclosure lowers your credit score an average of 250 points. The job of a credit bureau is to collect information about how you use credit. They sell that information to anyone who has a legally recognized reason.
If your credit score is 680 prior to a foreclosure, it may drop below 430. A credit score lower than 600 is generally considered to be low and you will most likely be charged interest rates nearly 3 percent higher than someone who has a score above 700.
Credit Report
It will take time to rebuild a good credit report following a foreclosure. Once foreclosure proceedings have been filed against you, the information will remain on your credit report for 7 years. At such time, it can be taken off of your credit report only after you have sent a written request to the three major credit reporting bureaus (Equifax, Experian and TransUnion).
Mortgage Fit.com says the effects of a foreclosure on your credit report are most prevalent for the first two years. Your credit score may gradually increase as you re-establish yourself as a credible credit risk.
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