Foreclosure and Your Credit Report

People who have faced foreclosure need to hire a credit advisor who will help them clean up the tarnished report. Besides the payment defaults that appear on the report, there are other issues like” Notice of Trust Sale” and the “Trust Deed Sale” which worsens things. Since there are so many things you need to deal with, hiring a credit advisor would be beneficial and can work with you to suggest ways to improve the credit scores from the current levels.

Though a clean up will not mitigate the negative impact of the foreclosure for close to a year, you can breathe easy for the next 7 – 10 years. Since the report will reflect prominently the last year details, it is in your interest to iron out the gaps to achieve financial bliss.
The bad news is that you will encounter refusal of credit, for a car or for your personal use over the next 3 – 5 years once the foreclosure is mentioned on your credit report.

You will need to get a score of 740 or higher to avail of a 30-year home loan at fixed rate of interest and even then, banks will want a 20% margin payment upfront. Some banks may permit a score of 620 and a 10% margin payment, but the fact is that you need to clear the report of its bad elements at the earliest.

Now the question is, what can be worse – foreclosure or bankruptcy. Opinion is divided on this, though many feel that a foreclosure is viewed more seriously by the creditors, the assumption being that bankruptcy excludes the house. Borrowers need to quickly start making up on the payment of the defaulted ones to retain the house.

You have two options – to restructure the agreement to procure a lower rate of interest or to ask for some time during which the creditor accepts suspension of payments till you can start making them again. As a desperate third option, if you absolutely struggling for finances, you can request the creditor to postpone foreclosure till you can dispose off the asset. You may still not get the amount you seek and have debt to be settled, but at least you can work out a “deed in lieu of foreclosure”, wherein you pledge your house to the bank.

Many people look at bankruptcy as an option but this needs to be used as a last gambit, since it can be very destructive to your credit report. You anyways need to make the monthly payments even when you declare insolvency. The only relief is you have the court on your side till the time you make up for the missed payments.

It is better to work out a restructured plan with the creditor and start making the payments slowly over an agreed tenure. This will not impact your credit score very harshly and you can set it right in the next 12 to 18 months.You can also request for some time from the creditor, to recover from a temporary problem of finances. You however, need to then meet the commitment made without fail.