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25 October 2012

Credit Concerns

Even credit professionals cannot predict the hit a borrower will take to their credit as a result of foreclosure. Generally speaking, most borrower experience a loss of 60-200 points to their credit scores depending on their other lines of credit. If at all possible, it is important to maintain all other lines of credit to […]

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Even credit professionals cannot predict the hit a borrower will take to their credit as a result of foreclosure. Generally speaking, most borrower experience a loss of 60-200 points to their credit scores depending on their other lines of credit. If at all possible, it is important to maintain all other lines of credit to help preserve your score as missed payments are reported during the foreclosure process. Surprisingly, the majority of the problems with a credit score are in the missed payments, not the actual foreclosure. We do not regularly see a dramatic drop in credit scores when the actual foreclosure itself is reported.

According to an AOL Real Estate article, even in the shadow of a foreclosure, a borrower can begin to improve their credit. Credit counselors advise paying at least the minimum payment on your credit cards each month, keeping only a minimum number of credit cards, and making sure those balances stay low.

Alan M. White, assistant professor at Valparaiso University School of Law in Indiana, encourages those who find themselves in this situation to remain hopeful. “The impact of foreclosure on your score diminishes over time, depending on whether you have other active, on-time accounts,” he explains.

Need to build credit? According to our credit restoration affiliate, it is a good idea to shop around for a credit card. Picking the right credit card can save you money. Look at the various sources and be sure to read the contract carefully. Know the penalties for missed payments. Figure out the total price when paying with credit. Make the largest payments you can afford. Use your credit cards when you’ve evaluated the situation and taken into consideration all payment options. Don’t be misled into thinking that small payments are easy or that purchases charged to credit cards are “free” simply because they do not require immediate repayment.

When looking for a credit card, there are many things that should be taken into consideration. It is a good idea to compare Annual Percentage Rate (APR), grace period, annual fees, transaction fees (such as cash advance, late payment and over-the-limit fees), and the balance computation method for the finance charge. Also, know what features are offered, such as credit limit, special services, and how widely the card is accepted.

Bottom line: yes, foreclosure will affect your credit negatively. But it doesn’t have to be as bad as some would make it seem and borrowers can even begin offsetting the consequences through the responsible use of credit while still in the foreclosure process. We hear with increasing frequency that lenders simply do not view foreclosure as they used to. Letters of explanation and proof of being otherwise financially responsible can sometimes assist in obtaining loans, rental properties, etc.

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