A foreclosure is when a lien holder exercises its right under contract at which time a mortgagor is in violation of the mortgage contract.
Depending upon the state, the lien holder obtains a court order to legally terminate a mortgagor’s right of ownership and interest in real estate property.
he foreclosure is initiated when the lien holder files a Notice of Default with the court due to non-payment by the mortgagor. If the mortgagor does not formally challenge the default within a limited period of time, the foreclosure becomes effective. Depending on the state, the mortgagor then no longer has any right to redeem the property.
Foreclosure and Your Credit Score
There are short- and long-term effects of foreclosure on your credit score. Immediately following the foreclosure your credit score plummets due to the impact of such a negative report. In addition, a foreclosure can legally stay on your credit report for seven years.
The foreclosure, however, does not have to remain on your credit report. Is the foreclosure still noted on your credit report after seven years? If so, you have every right under the Fair Credit Reporting Act (FCRA) to have the item removed.
You can initiate the removal of the foreclosure yourself. Here’s how you do it:
Credit Reports. Request a free copy of your credit report from each of the major credit reporting agencies – Equifax, Experian and TransUnion. You should make a habit of doing this every year, regardless. The FCRA includes a provision for one free credit report every twelve months from each of these agencies. If you request a different one each quarter, you would have a continual status of your credit history … for free! This would also enable you to quickly address inaccuracies.
Find the Foreclosure. Circle the foreclosure on each of your credit reports. Make copies of the page to send to each of the three major credit reporting agencies.
Dispute the Foreclosure. Create a letter that specifies the dispute of the foreclosure – i.e., past the seven-year legal reporting limit.
Submit the Letter. Mail a copy of your letter, along with the copy of the credit report page with the circled foreclosure, to each of the major credit reporting agencies. The credit reporting agencies must remove the reporting as required by the FCRA, and provide you with a copy of the corrected credit report.
Insider Tips and Strategies to Boost Your Credit Score
Contrary to popular belief, you can improve your credit score in a relatively short amount of time after foreclosure. Here are some tips and strategies you can use:
Round Robin. Obtain three secured credit cards, one at a time. Once you receive the first one, take out 70% of your credit limit as a cash advance. Do the same with the second one. Repeat the process with the third one. Take the cash advance and put it into a new checking account. Make your payments on time and watch your credit score rise. Initially, this will diminish your credit report due to the inquiries and new credit; however, after several months it will actually raise your score significantly higher than where you started prior to the round robin.
Reduce Debts. Pay on accounts that are in excess of 50% of the credit limits. Reduce the balance below 50%, and this will raise your credit score quickly. Don’t pay off your revolving credit, since this has a neutral effect on your credit score. You earn credit score credibility with creditors by showing how responsible you are with making payments on credit balances, not by paying them off.
Keep Accounts Open. Don’t close your accounts. Keep four to five revolving accounts open, especially those that have the longest credit histories.
No New Credit. Don’t get new credit. The exception is the round robin mentioned previously. New credit inquiries diminish your credit score. Instead, ask for a credit card limit increase.
Mix of Credit. After six to nine months of exercising the previously mentioned methods, obtain a car loan. After eighteen months to two years, obtain another mortgage. A good mix of credit comprises about 10% of your credit score.
Related posts:
- What Is Bad Credit?
- Credit Bureaus
- Credit Limits and FICO Score
- Credit Score Models
- How To Repair Credit?
FAQ: How do I check my Free Credit Report?
Your credit report is the basis for your financial standing. No matter how slick or smart you may be, no bank will touch anyone with a low credit score. It's their money, why would they want to take a bigger risk than they need to?
If you don't know where your credit report score is at, now's the time to take a peek. Don't get surprised with a low credit score when you go in to review your report with a potential lender or even an employer, find out for yourself within minutes.
