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How Does a Foreclosure or Short Sale Affect Your Credit Score?

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When you go through a foreclosure or short sale, you will need to know how it will affect your credit score. In addition, if you are planning on getting another mortgage shortly, this is something that could impact your ability to get approved for the loan. This blog post discusses what happens when you go through these types of transactions and how they affect your credit score.

 

What Do You Need To Know About Foreclosure and Short Sale?

Short sale or foreclosure is when you sell your home for less than you owe on the mortgage. A credit score is a number that represents your creditworthiness and is used by potential lenders to determine if you will qualify for a mortgage.

Your score can also be used in other ways, such as determining the interest rate on an auto loan or getting extended lines of credit at certain retailers. There are several different scores, but they all follow the same basic rules when providing information about how likely it is that you would repay borrowed money.

Can These Affect Your Credit Score?

In case of a foreclosure, the borrower’s credit score will take a huge hit. If you short sell your home or are foreclosed upon, getting another loan for seven years via FHA guidelines can be challenging. This means there is no way on earth lenders would approve any new mortgage loans if they know that one had been in this situation before.

When applying for mortgages after being foreclosed on or short selling their homes, borrowers need to disclose these situations upfront when filling out applications which can lead them into denial due to not meeting the eligibility requirements of most banks and financial institutions today.

There are even some instances where buyers may be approved for a mortgage, but their credit score is still insufficient to make the purchase. In cases like this, where borrowers are fighting to get eligibility requirements met and more lending options open up, short sale lenders tend to help out by approving loans even if they do not meet the general guidelines required of most banks and financial institutions today.

Suppose you have been in foreclosure or were forced into selling your home due to bankruptcy. In that case, you should contact a reputable lender who specializes in these kinds of situations before applying for new mortgages on homes with FHA financing because the chances are high that such applications will end up denied.

It’s important to know what can affect your credit score when dealing with foreclosures, short sales, or other similar situations.

  • Foreclosure – This is when your mortgage is no longer payable, and you lose your home. A foreclosure can be postponed, but it cannot be avoided eventually if the borrower fails to pay their mortgage payments on time every month for a couple of years in a row or several months in one year.
  • Short Sale – This is when the homeowner sells their property for less than what they owe on the house and agrees with lenders that this amount will cover all outstanding debts owed by them towards mortgages and other costs associated with loans such as insurance premiums which includes late fees, legal bills etcetera.
  • Bankruptcy – If borrowers cannot keep up with debt repayments, then filing bankruptcy might appear as an option where debtors enter into agreements where creditors agree upon repayment plans over specific periods.

How Late Payments Affect Credit Score And How Properly Manage It?

If you have ever wondered how to avoid late payments, you will be glad to know that there are many ways to prevent this. One of the most widely used methods is simply setting up an automatic payment through your bank account, so it never comes time for you to pay again!

If you cannot avoid late payments, make sure you pay as quickly and comprehensively as possible to avoid financial penalties. It is best to set up a hard deadline for when your payment must be sent to prevent further late fees or damage to your credit score!

Missing one payment will affect your credit score. While an isolated incident will not be as severe as multiple late payments, you should still make sure to avoid this at all costs.

The first thing that will affect your credit score is the amount of time it takes for the missed payment to clear up and no longer appear on your report. The next thing that can happen (and most likely will) is a drop in your score.

The exact amount that it drops will depend on how many other accounts are reported as having missed payments, the age of the account, and whether or not you have signed up for automatic payments. The best way to avoid any more damage is to make sure you get back on track with making timely monthly payments!

If all else fails, you can try to negotiate a lower balance with your creditor, as this will improve your score and make it easier for you to pay off the debt. Many online resources offer advice on how to handle these types of negotiations so take advantage of them!

Rebuilding Credit Score After A Foreclosure or Short Sale

There are still ways on how you can rebuild your credit score.

Since you already had a foreclosure, it does not mean that there is no way of rebuilding your credit history again. You might even get approved for certain loans in the future if you try to rebuild or establish your financial standing once more. There are still ways to do this; however, be reminded that it is a prolonged process.

When it comes to credit training, you will have the chance of increasing your score if you pay all your bills on time from now on. It would be best that you start with smaller ones compared to the bigger ones, such as loans and mortgages, because this way, they can build trust in them.

Building your credit score will take time. Some people can do it in six months while others might even take years, so you should not worry about that anymore and concentrate on the present instead. However, you must remember these things when rebuilding or establishing a new financial standing since they could either help speed up the process or slow it down.

Final Words

At The Oasis Firm, our team is very passionate about helping homeowners out. We are dedicated to ensuring that we do the best job in providing you with all of your options, so feel free to send us an email or give us a call today!

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