Article by Kat Kally

Foreclosure is the legal process that terminates a homeowner’s rights and gives possession of the property to the mortgage lender. Foreclosure is a consequence of a homeowner defaulting on their mortgage loan–not paying the monthly mortgage payment in accordance with the terms of the loan. A credit score is a numerical indication of your financial well-being at a particular point in time. Foreclosures can have a significant impact on your credit score, but you can cushion the hit with smart money management.Several factors affect your overall credit score, but the two most important are the amount of your outstanding debt as compared with your available credit and paying your bills on time.

Foreclosure ImpactNew foreclosure listings on your credit report can lower your credit score up to 250 points. The severity of the impact will vary based on the contents of your credit file. A positive payment history on credit cards and other installment loans can temper the effect of a foreclosure. If the total amount of your outstanding debts is significantly less than the total amount of your available credit, it could lessen the effect of the foreclosure on your credit score. A typical mortgage lender reports late mortgage payments to the credit bureaus within 1 day to 1 week after your payment is delayed. Your score takes a hit every time a late payment is reported, so the decline in your score can be gradual immediately before a foreclosure. The overall impact of a foreclosure begins with the late payments, culminating in the larger hit at the time the foreclosure is listed.

Scoring FactorsPayment history, including late mortgage payments, accounts for 35% of your overall credit rating. Outstanding debt accounts for 30%, the length of time you’ve used credit equals 15%, your credit mix (a balance of installment loans and credit cards) and recently opened credit accounts are 10% each.

Time FactorForeclosure accounts are listed in the ‘Public Information’ category of your credit report for seven years. After seven years, the credit bureau should drop the listing from your credit file. During the seven year period, a foreclosure’s impact on your credit score lessens each passing year. The FHA will consider your new home loan application three years after a foreclosure. As with your credit score calculation, other factors play a role in your qualification process, such as one successive year of on-time payments and good credit management.

DeletionIf the credit bureau continues to list a foreclosure on your credit report longer than seven years, you can file a dispute to have it removed. Experian, TransUnion and Equifax are the three credit bureaus responsible for maintaining accurate information in your credit file. You can file a dispute online with each of the three agencies at their websites,, and

DeductionA foreclosure is an inevitable fact of life for some consumers. Remember that your credit score is a snapshot of your financial health and changes whenever new information is reported. The impact of a foreclosure and other negative items also lessens as time goes by. About the Author

To learn much more about information in your credit report and how you can improve your credit score, visit