How does foreclosure of loan impact your credit score?
Foreclosure may have an adverse and lasting impact on your credit score. But first of all, let us understand what a foreclosure is. It refers to a legal process in which a lender attempts to recover the unpaid loan from a borrower by forcing the sale of asset that was given as the collateral.
This happens when a homeowner defaults on their mortgage payments, and consequently, the lender forfeits the asset to recover their investment.
Drop in credit score: A foreclosure, as one would expect, can lead to a significant drop in credit score, by hundreds of points. The exact impact depends on various factors, including your credit history before the foreclosure and the scoring model used.
Future applications: After a foreclosure, you may find it challenging to get new credit or loans. Even if you're approved, you're likely to face higher interest rates and less favourable terms due to the increased risk perceived by lenders.
Obtaining new housing: Many property management companies tend to check credit reports as part of their tenant screening process.
A foreclosure may make it more challenging to rent a new apartment or house, as landlords may view you as a higher risk tenant.
Remains on credit report: A foreclosure remains on your credit report for up to seven years from the date of the first missed payment that led to the foreclosure.
During this time, it can have a significant negative impact on your ability to qualify for new credit, rent an apartment, or even secure certain job opportunities.
Long-term impact: The financial consequences of foreclosure can extend beyond the immediate impact on your credit score.
It can affect your ability to qualify for future mortgages, potentially delaying your ability to purchase
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