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How Low Will My Credit Drop After a Short Sale or Foreclosure?

With credit scores, one can easily predict the possibility of you making payments on time, paying off loans, and helping a lender determine whether you are a risk. Credit scores are determined by an individual’s lending history and ability to repay and manage debts based on the agreement. Factors like letting your mortgage payment slide, failure to make timely payments tend to affect your credit score. There is every tendency for your credit score to be impacted if you suffer a foreclosure or short sale, which will, in turn, make you a potential risk for a lender.

If you are thinking of taking a short sale or foreclosure for your home, after reading this, you will become aware of how much your credit score could drop. However, at this point, it is necessary to consider the meaning of short sale and foreclosure

WHAT IS A SHORT SALE?

With a short sale, you have the opportunity of selling your home and using the gains or proceeds from the sale to pay off your mortgage irrespective of whether the profits don’t make up the full balance. When you attempt to sell your home for even less than you owe in a short sale, the lender earns the proceeds. Not every lender will be open to the idea of a short sale, and homeowners have to be at least 90 days late for the lender to be open to that idea. In some cases, lenders might choose to forgive the unpaid balance on the mortgage or not. In some states, certain laws allow lenders to seek deficiency judgments, which ensure that you pay the difference between the balance due on the mortgage and the sale price.

WHAT IS A FORECLOSURE?

There is every chance for you to be faced with a foreclosure when you fail to make your mortgage payments, and the lender chooses to seize and sell your property in other to make up for their financial losses. It takes a lender four missed payments to result in foreclosure proceedings. The foreclosure process tends to vary by state, but if you are going to be faced with a foreclosure, then you would receive a notice most likely through a mail.

HOW LOW A SHORT SALE CAN REDUCE YOUR CREDIT SCORE

A short sale will most likely affect your credit score and not just by a small margin. It is capable of dropping it to as low as 100-150 points and that depends on where you started; your credit score will only fall more based on how high it was. Short sales are regarded as the worst things that can affect your credit score. Credit scores tend to range from 300 to 850; for example, if you have your credit score between the range of 750-800, it can easily reduce to 150 points or lower in a short sale. If you are within the range of 650-720, after a short sale, you could lose 100 points and fall into what is commonly referred to among lenders as the subprime category.

HOW LOW A FORECLOSURE COULD REDUCE YOUR CREDIT SCORE

Foreclosures tend to have more effect on credit scores. Now according to FICO, based on a person’s starting scores, a fair number of homeowners who go through a foreclosure experience a drop in their credit score from between 85 and 160 points. An individual with a good starting score of 680 could reduce to between the ranges of 579 and 594, which is regarded as a fair or poor score range, and someone with an excellent score of 780 may reduce between 620 and 642. Foreclosures can affect a consumer’s credit for as long as seven years.

It is necessary to understand this because a low credit score can make it difficult or impossible to borrow. Plus, as your credit scores drop, your interest rate will only continue to increase even if you are eligible for credit loans.

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How Fast Can My Credit Score Come Back After Bankruptcy?

Bankruptcy can be a scary word but it also can mean freedom and relief from major stress. There are a lot of reasons why someone might choose to file bankruptcy, either a divorce or painful separation from someone that has ruined your credit, medical injuries or bills, or even job loss. Bankruptcy is nothing any of us should enter into lightly, but it may also be the best option. One of the most common questions we get is how long does it take to reestablish credit after a bankruptcy. Here are some important answers to how fast can your credit score come back after you’ve suffered bankruptcy.

It’s important to know that bankruptcy can and probably will cause your credit score to drop dramatically. There’s no way to underestimate the impact of a bankruptcy and it is one of the worst things you can do to your credit score, however, if you don’t need your credit score for any other major purpose in the next few years, it may be worth it to get you out of the stress and payments of medical bills, credit card debt, or other issues that are proving just too difficult to handle on your own.

Bankruptcies can also cause long-term damage to your credit report. Any public record of a chapter 7 bankruptcy can stay on your credit report for up to 10 years. Chapter 13 or any accounts included in the bankruptcy as well as third-party collection debts, tax liens, and judgments can stay on your credit history for up to seven years.

The good thing is that the negative impact the bankruptcy has on your credit will diminish over time. Time is definitely on your side when it comes to re-establishing your credit. Here are some key things to do to ensure that time is not only working for you but when the time comes for that bankruptcy to drop off, your credit score will skyrocket.

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#1. Check your credit report frequently.

Credit reports aren’t perfect and you may find errors from time to time. It’s important to check your credit history after bankruptcy as scary as it may be. Just a bite the bullet and do it. Did you know that 25% of US consumers have found errors on their credit reports that may affect their score? As soon as your bankruptcy is complete make sure that the accounts that were discharged are reported as “discharged. Verify that they have a zero dollar balance and that the bankruptcy filing date is correct so that you can remove this bankruptcy as quickly as possible.

#2. Consider a secured credit card or a credit builder loan.

I know that you’re thinking you just got out of debt so why would you get more in debt? But to rebuild your credit means you have to have a certain history of positive impacts on your credit, which means rebuilding credit. Get a small secured loan or credit card and pay it off every single month.

#3. Consider becoming an authorized user on someone else’s account.

If you have a trusted friend or relative consider asking them to add you to their credit card account. Your credit will benefit from their positive history, as long as they have some. You can use the credit card in your name and it’s a good way to rebuild your credit.

#4. Ask for the consumer credit bureaus to report any payments.

If you are making on-time payments whether it’s to your car payment, student loan, or even rental payments, ask your landlord to report your monthly payment to Equifax, Experian, and/or Trans Union if possible. Of course, you can control is someone else is going to do it, but it is a step to reestablish your credit.

More: How long does it take to Increase a Credit Score?

Again, it can take anywhere from 3 to 10 years for your credit to come back depending on the type of bankruptcy you’ve chosen and how quickly you’re willing to repair it. If you need help with any bankruptcy attorney issues or have more questions on bankruptcy in western Washington contact our office at any time.