Protecting Your Credit Score from Foreclosure

You’ve missed mortgage or tax payments. You’re facing foreclosure. Missing house payments and/or a foreclosure can tank your credit score. It’s the same credit score that may have allowed you to buy your home. In fact, delinquent payments can lead to your home being placed on a pre-market real estate list or instant credit score penalties.


Why is a Low Credit Score Bad?

A foreclosure may lead to an instant 100 point drop in your credit score. That’s not all. A foreclosure may be listed on your credit score for decades. This can prevent you from getting another home in the future. For instance, you have to wait for one to seven years to obtain a FHA-backed loan for a new home.

Even if you don’t want another home, your ability to obtain new credit may be damaged. Lenders put heavy weight on your credit score, also called FICO score. A bad credit score can me plenty of loan denials or higher interest rates if you obtain a loan.  One way to avoid foreclosure is to sell your house for cash from places like We Buy Houses.  These services offer that you can “sell my house fast” and prevent foreclosure even if your home is “ugly” or in need of drastic repairs or updates.

Can I Fix My Credit Score?

Yes. The best way to avoid a low credit score is to remain current on all your debts. Make all payments on time and for the full payment about. If you’re already behind in your payments, have a foreclosure or bad debts, you can fix your credit score in the same way. It’s possible to repair your FICO score in two years.

I want to Avoid Foreclosure and Ruining My Credit Score. Are there Any Alternatives to Foreclosure?

Yes. You have many options to avoid foreclosure. The most popular options are:
• Bankruptcy: Chapter 13 allows you to repay back mortgage payments in about three to five years. Only Chapter 13 comes with an automatic stay. This means your lender can’t continue to foreclosure process. It doesn’t matter if you’re in the beginning of the process or your house is up for auction. You’re still required to keep all payments current mortgage payments current.
Loan Modification: With a loan modification, you work with your lender to make changes to your loan to keep your home. These changes ranges from lowering your interest rate to placing missed payments at the end of your mortgage. You must make all your payments on time and in full or the lender can report the negative information to the credit bureau.
• Cash Offer: Cash offers allow you to avoid going into foreclosure altogether. You work with a company that pays you for the property. The offers are completed quickly. You don’t have to worry dealing with the lender or a low credit score. You can take the money and find another place to live and start fresh.

Can a Deed in Lieu of Foreclosure or a Short Sale Prevent a Low Credit Score?

No. These options are common alternatives to foreclosures, but they have a negative impact on your credit score.

Should I Just Hire a Credit Repair Company to Fix My Credit Score?

No. There’s no quick fix to improve a low credit score. You have to wait the required time to repair damaged credit. Although majority of credit repair companies claim they can repair credit quickly—they can’t. Delinquent payments stay on your credit history for up to seven years. A foreclosure stays on your credit history for about 10 years. No credit repair company can shorten the time period.

No one buys a home thinking they’ll end up in foreclosure. All isn’t lost if you do find yourself in any stage of the foreclosure process. You have options. Whether you consider a cash offer or Chapter 13, you can avoid damaging your credit score. Choose an option that resolves your current problems and is a fresh financial start for you.