Credit Score: How Foreclosing A Loan Impacts Your Score
Foreclosure results in a significant drop in the credit score, with its impact determined by various factors, such as the credit history before the process and other details.
Getting a loan approved from a bank or other financial institution has become relatively easier today. The loan application process can now be completed within minutes online without the need to visit physical branches. While it does help people get loans approved faster, it is important to understand all the terms and conditions before taking a loan. One key thing to note is the foreclosure terms as it can have a negative and lasting impact on one’s credit score.
Foreclosure: What It Means?
In a loan's context, a foreclosure happens when the borrower fails to pay the required installments, resulting in the lender seizing the collateral used to get the loan approved. Through this legal process, the lender tries to recover the unpaid loan amount of the borrower by the sale of assets.
How Foreclosure Impacts Your Credit Score
Decline In Credit Score
Foreclosure results in a significant drop in the credit score, with its impact determined by various factors, such as the credit history before the process and other details.
Long-Term Impact On Credit Report
The foreclosure remains mentioned on the person's credit report for a period of seven years. This starts with the date of the first missed payment which resulted in the process. In this time frame, it becomes a daunting task for the person to get qualified for new credit.
Problems With New Application
Even if approval is granted for a new credit or loan, the borrower might face several other issues, such as relatively higher interest rates due to the high risk perceived by the financial institution.
Other Charges
At times, people are required to pay back high foreclosure charges that depend on the terms and conditions of the lender as well as the loan amount and tenure. This means that the funds can't be utilised for other necessary investments.
Difficulty In Buying Property
A foreclosure makes it difficult for people to rent a new house for a family as several property management firms look into the credit reports of the individuals.
Tips To Improve Credit Score After Foreclosure
Timely payment of bills: It is often advisable to embrace healthy credit habits by making payments for all sorts of bills on time. This helps lenders in determining your credit score.
Credit card: Make sure that you spend only that much amount of money using your credit card that you can pay back in full every month.
Patience: Even after being through foreclosure, there are multiple ways to rebuild your credit score. However, this takes time and people need to continue making disciplined efforts for the same.
