How to Get a Foreclosure Removed From Your Credit Report
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For homeowners, there are few things worse than the thought of foreclosure. If you fall behind on your mortgage payments and the bank thinks that your mortgage is a lost cause, then they could foreclose your home, either selling it at auction or taking possession of it themselves.
Foreclosure exists because very few people can afford to buy a house with cash upfront. Instead, most of us will take out a special loan called a mortgage and slowly pay that back during the time that we’re living in the house. However, as with many loans, banks are only willing to hand out mortgages if they can be sure that they’re not going to lose money from the deal. Foreclosure is a tool that lets banks recoup their losses from unpaid mortgages, kicking out the homeowners and repossessing the home.
Unfortunately, when it comes to foreclosure, losing your home is not the only negative thing that can happen. At the end of the day, a mortgage is a loan, so an unpaid mortgage can severely damage your credit score. If your home has been foreclosed on, then it’s time to hit the ground running — find out how to repair your credit and remove that foreclosure from your credit report.
How Does a Foreclosure Affect Your Credit?
Credit is a measuring tool that lenders use to determine how much they’re willing to lend to a borrower and at what interest. A higher credit score means that you have a better chance of getting more money from lenders on more favorable terms, including longer repayment schedules with lower interest rates.
Your credit score is affected by a variety of things, but one of the most important elements on your credit report is your ability to pay back debt that you’ve taken on. A good track record repayment will help your credit score, and a history of missing payments or defaulting on loans will hurt it. If your home goes into foreclosure, then the bank will report that you have defaulted on your mortgage. This will hit your credit score in a huge way.
How Long Does a Foreclosure Stay On Your Credit Report?
Fortunately, a foreclosure will not stay on your credit report forever. Like other demerits on your credit report, foreclosure no longer affects your credit after 7 years. During those 7 years, the impact that a foreclosure has on your credit score will also lessen over time. Having your house foreclosed on does not mean that your credit score is doomed — it is possible to recover and improve your credit over time as the foreclosure fades away.
Short Sale vs Foreclosure
If you’re having trouble meeting your mortgage payments, you don’t necessarily have to let the bank foreclose your home. Instead, you can choose an option called short sale. A short sale happens when the homeowner, facing imminent foreclosure, chooses to sell the home at a discounted price to make up as much of outstanding debt left on their mortgage as possible. Even if the sale price isn’t quite enough to entirely cover the mortgage, the bank may still accept the payment and close the mortgage.
How Does a Short Sale Affect Your Credit?
Some homeowners believe that a short sale will not affect your credit, since it counts as repaying your debt to some extent. However, this is not true. In most cases, a short sale will hurt your credit just as badly as a foreclosure would have. With a short sale, it is possible in some cases to convince the bank to mark you loan as “paid” after a short sale, but this will take a lot of negotiating.
Essentially, a short sale is exactly like a foreclosure from the bank’s perspective, except in the case of a short sale the homeowner does the work of selling the house. However, with both foreclosure and short sale, the bank has determined that the homeowner is unable to make their mortgage payments. This is why foreclosure and short sale both affect your credit in similar ways. Just like a foreclosure, a short sale will stay on your credit report for 7 years.
Removing a Foreclosure From Your Credit Report
Foreclosure isn’t always your fault. If you receive a foreclosure notice from your bank and you find yourself mystified as to how or why you’re being foreclosed on, it’s possible that the bank is the one who screwed up. In these cases, you can and should remove the foreclosure from your credit report.
Challenge Unlawful Foreclosure
Foreclosures often require a lot of paperwork. If your bank has been skipping steps in a foreclosure proceeding, then they may be guilty of an illegal foreclosure. In this case, your first step should be to dispute the legality of the foreclosure with your bank. They may just admit to the mistake and remove the foreclosure from your credit report right there. If things go further, then it’s time to get professional legal help — this is a time when a credit repair company can help you fix the mistakes on your credit report.
If you are behind on payments and need help paying your mortgage, you have options. If you can demonstrate a financial hardship or are dealing with sudden unemployment, you can often qualify for special programs or even aid to help you pay your mortgage and avoid foreclosure in the short term. You don’t have to wait to be threatened with foreclosure to take action, seek help, and prevent damage to your credit — or risk the loss of your home.
Having a foreclosure on your credit report doesn’t mean that your credit score is going to be in ruins forever. Foreclosures and short sales stay on your credit report for up to 7 years, and their effect on your credit score will fade during that time. You may also remove a foreclosure from your credit report before then, if you find out that the bank made a mistake in foreclosing your property.
For more information on credit scores and what affects them, visit our credit score resource center.
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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.
This post was updated May 4, 2018. It was originally published March 27, 2018.