Will foreclosure hurt my credit?

• September 20, 2021
• Foreclosure

When you fall behind on bills, it sets off a domino effect of debt problems. One of the biggest problems can be missing mortgage payments on your house, which can eventually result in foreclosure. If you’re asking yourself whether foreclosure will hurt my credit, the answer is almost certainly “yes.”

A foreclosure is a serious negative credit event, which not only lowers your credit score now but can prevent you from qualifying for new loans and credit cards for years into the future.  Each missed mortgage payment damages your credit score until the case ultimately winds up in foreclosure, which hurts your credit further still.  Typically, foreclosures only commence after you have missed four consecutive monthly mortgage payments, or 120 days of mortgage delinquency. Lenders can charge you late fees for missed payments.

A foreclosure is when a lender takes back your property and sells it after you have failed to make required payments. If you default on your mortgage on a home in Indiana, the foreclosure will be judicial. (Ind. Code § 32-30-10)  In addition to missed mortgage payments, a foreclosure may be triggered by other events such as unpaid property taxes, lapsed homeowners insurance, or failure to maintain the structure and upkeep of a house.

Lenders see a foreclosure on your record in a very negative light because, as a borrower, you are considered a high credit risk. A foreclosure can be a reason that a bank or other lender denies you credit.

If you have fallen behind on your mortgage payments, talking to an Indiana foreclosure attorney is a prudent first step.  Find out what your legal options are before making any decisions.  Attorney Jerry E. Smith offers guidance and help to individuals who are struggling with debt.  For a free one-hour initial consultation, call us at (317) 917-8680.

A closer look: How foreclosure affects credit

Foreclosure is considered one of the most negative events in a person’s credit history. Exactly how many points each missed mortgage payment will deduct from your credit score depends on several factors, but suffice it to say that these missed payments and/or a foreclosure will cause your score to drop dramatically. Missing payments on other debt such as credit cards, car loans, and revolving store accounts will only compound this problem further.

Indiana foreclosure process

In Indiana, you’ll most likely get the right to the following in a foreclosure process:

• You will receive a pre-foreclosure notice
• You can apply for loss mitigation
• You will have the option to attend a settlement conference
• You will have the chance to get current on the loan and stop the foreclosure
• You can pay off the loan to prevent the bank from selling the property
• Military members can receive special protections from foreclosure
• You can file for bankruptcy

If you have suffered a foreclosure, don’t give up hope. While it takes work and disciplined healthy credit habits, it is possible to repair your credit score over time and eventually qualify for a new mortgage to purchase a home in the future.

How long will foreclosure stay on my credit record?

According to Experian, one of the three major credit rating agencies, foreclosure stays on your credit record for seven years from the date of the first missed mortgage payment that triggered the foreclosure.  A foreclosure typically shows up on your credit record within a month or two after a lender commences a foreclosure proceeding.  Lenders and credit scoring models view a foreclosure as a serious indicator of financial unreliability, which can impede your ability to secure loans, credit cards, and other credit opportunities.

After seven years, a foreclosure will be deleted from your credit report and you can start fresh, though it may take some time to rebuild your credit score.

Can foreclosure be removed from a credit report?

A credible foreclosure cannot be removed from a credit report before the seven-year period, at which time it should automatically fall off your report. If for some reason it is not automatically removed – or in the very rare instance that your credit record inaccurately contains a foreclosure that never occurred – there are steps you can take. You can dispute an item on your credit report through established processes at each of the three credit bureaus – TransUnion, Equifax and Experian.

Review your credit records periodically

You should review your credit records periodically to make sure there are no inaccuracies.  According to federal law, you are entitled to a free copy once a year of your credit report from each of the three credit bureaus.  To request a copy, go to AnnualCreditReport.com.  If you find an error, contact the credit bureau promptly and dispute the entry.  Errors can include things like collections debt that has already been paid off, closed credit card accounts showing balances, or incorrect addresses.  To get an item removed, you will need documentation showing that the credit entry is incorrect.  Having an erroneous entry removed usually has a positive impact on your credit score.

Could bankruptcy be an option?

If you are facing foreclosure and other overwhelming debts, bankruptcy may be an option you want to pursue.  Whether a Chapter 7 liquidation bankruptcy or a Chapter 13 reorganization bankruptcy, pursuing one of these options can give you some breathing room and may also halt a foreclosure process.  While bankruptcy is not an option to be taken lightly, it is a way to make a fresh start and place yourself on a firmer financial footing.

Contact attorney Jerry E. Smith today

If you have missed mortgage payments or have fallen behind on credit card and other debts, talking to a skilled, experienced and affordable bankruptcy attorney can be a first step in taking control of the situation. Even though you are feeling under pressure, you still have several options. Attorney Jerry E. Smith has helped countless clients just like you find their way through tough situations. Smith Law Firm offers weekend and evening appointments as well as same day filings if possible. To learn more about how we can help, call us for a free one-hour initial consultation at (317) 917-8680. You’ll be glad you did!