Effect of foreclosure on credit score and ways to improve your score

Has your lender foreclosed your home? Are you worried about what will happen to your credit score after foreclosure? You should know that foreclosure will lower your credit score to some extent. However, it may not have much impact if you�re regular with other debt payments. Go through the following article to know the effects of foreclosure on your credit score and what you should do in order to improve your score.

Foreclosure � What it means

Foreclosure can be defined as a legal process by which your lender takes away the legal rights on your property in order to satisfy the balance amount of the mortgage debt. The homeowner loses all legal rights over the property.

Presence of foreclosure on your credit report

Foreclosure stays on your credit report for 7 years even if your score goes up by some points. You may experience credit denials for the first 2 years. However, if you�re able to build a positive credit history, then you can offset the negative impacts of foreclosure; it will help you to obtain a new loan.

How foreclosure affects your credit score

If you�re worried about your credit score after foreclosure, then you may know that your score is likely to drop by about 150 – 250 points. Actually, it depends on your current credit score; if your score is around 800, then it is likely to drop by 250 points thus making it around 550. However, if you�re current on your other loans, then a foreclosure will not have much effect on your score.

How to raise credit score after foreclosure

As stated before, you can minimize the effects of foreclosure by improving your overall credit history. At first, try to find out the cause of foreclosure so that you can prevent it in future.

Here are some ways by which you can improve your credit history thereby increasing your credit score after foreclosure.

� Reduce your outstanding debt amount: You should try to decrease your debt-to-income ratio by reducing the amount of your outstanding debt.

� Stay current on payments: Make your monthly payments on time and make sure that your creditors and lenders report them to the credit bureaus.

� Plan a realistic budget and follow it: It is quite necessary that you plan a realistic budget, which you�ll be able to follow. It will help you to pay off debts as well as manage your money responsibly.

You should know that there is no legitimate way to remove foreclosure from your credit report for 7 years. Therefore, beware of credit repair services that promise to remove foreclosure quickly. However, after 7 years, you need to send a written request to each of the 3 credit bureaus (namely, Experian, Equifax and TransUnion) and request them to remove foreclosure from your reports.

Useful resources: