Affect Of Foreclosure on FICO Score

How A Foreclosure Can Affect Your FICO Credit Score

A foreclosure is when a short sale occurs on the home of a person where the amount you want a mortgage loan is recovered by the lender by selling the borrower’s property. A foreclosure can also result in a short sale where the lender agrees to accept less than the total amount you on the mortgage. A foreclosure has a strong potential to lower your credit score. A foreclosure is one of the more serious entries that can be found on your credit report.

The circumstances that led to the foreclosure does not really make a difference to the credit score.

When a credit score sees a delinquency on the credit report it measures the seriousness of the negative entry based on 3 following factors:

Recency, which means how recent is the delinquency. Severity, which means how late the payment is and how big is the amount. Frequency, which means how often does the consumer default on this particular credit account as well as other accounts in the credit report.

A foreclosure is a serious business because it includes all of these 3 factors. A mortgage lender does not like to do a foreclosure on our home because it is a no-win situation for everyone. In most of the situations it calls for financial loss for the lender and it gets a lot of bad publicity as well. So usually when a foreclosure happens it is after all means of recovering the debt from the borrower has failed. This also means that the payment has been long delayed which means the recency factor is strong. Because it is a Motley John and the amount involved is likely to be big sum, the severity factor is also high. Since of foreclosure does not happen after one late payment, the foreclosure also means that you have not paid the monthly installment for the past 6 to 7 months. Each late payment is reported to the credit bureau and that means the frequency of the default is also pretty high.

How can you improve your FICO credit score after foreclosure

a foreclosure will stay on your credit report for the period of 7 years. During this time it will continue to impact your credit score. However as is the case with any other late account on your credit report, the impact becomes less with the passage of time. However, your future mortgage lenders will not like to see foreclosure on your credit report. It makes them nervous to know that you have defaulted on a mortgage loan in the past. Unless you can provide them with adequate proof of unavoidable circumstances that made you will undergo a foreclosure and also convince them that you are in a position to make payments on your future markets, getting qualified for loans will be very difficult. Even after 7 years when the foreclosure has fallen off your credit report many mortgage lenders require you to state in your application form if you have ever faced a foreclosure prior to this mortgage loan or not. Lying on a mortgage loan application is never a good idea. So even after 7 years the foreclosure may hurt your homegrown prospects.

The only way to improve your credit score after foreclosure is to try and remain current on all other credit accounts. Keep using credit cards and other lines of credit responsibly and keep making regular payments on it. You can even consider opening a new line of credit such as a new credit card and using it discreetly to add to your payment history.

A-Credit and A-Minus Category Of Borrower

A–Credit is defined as a borrower with a top credit rating and one who deserves the lowest prices and interest rate that a mortgage lender has to offer. This borrower is also defined as a prime borrower. While most lenders require a fico score about 720,  this is a criterion that also keeps changing. Some may ask for credit score as high as 800 in order to consider a borrower as the client .

It also depends on the market conditions. If the trend is more buyer friendly the definition and credit score requirements for an A-Credit borrower may be slightly less.

However, even if the requirements to qualify for a mortgage become less stringent regarding the credit scores, the rating that is considered to be prime does not change so much.

In recent times, the definition and credit score requirement to be an A-Credit borrower has only increased.

A–minus:

This classification belongs to a borrower who falls below the category of a prime borrower. This category of a mortgage loan borrower is usually considered to be a risk owing to the credit-rating, debt to income ratio as well as other factors that result in the borrower being less than ideal choice for a loan. In other words an A-Minus borrower does not meet the same standards and criteria as and he borrowed.

Whereas it was simple enough for A-Minus borrowers to qualify for credit as well a few years back, most of the sub-prime lenders have closed shop today.

This does not mean that A-Minus borrowers cannot get the mortgage they want. They will just have to contend with paying a higher interest rate, making a higher downpayment, getting a guarantor to cosign on the mortgage, in a combination of any one or all of the above.