Eradicating Foreclosures from Credit score Report


Your creditworthiness affects everything from your ability to rent an apartment to getting a home loan approved. Creditors and lenders will check your credit scores and your credit reports to see if you are creditworthy or not. The better your score and the fewer red flags on your credit report, the lower your interest rate could be if you are approved.

A foreclosure on your credit report can affect your ability to meet your financial goals. Removing a foreclosure takes patience and time. In certain circumstances, a foreclosure can be removed from your credit report. If you run into these situations, you need to take steps to remove them.

What is a foreclosure?

Foreclosure occurs when a mortgage servicer takes ownership of a home because the borrower is no longer able or willing to repay the loan. The lender protects their interests by using this legal process to end the owner’s right to the property. As a rule, the property is then auctioned. The proceeds from the sale will be used to pay back the original mortgage loan.

There were many foreclosures due to the 2008 real estate crisis that left borrowers across the country unable to pay their mortgages. Eventually, the lenders used foreclosure to take possession of this property.

Foreclosing your home is a challenging event. But it’s not a permanent situation and it is possible to get out of foreclosure and buy a new home in the future.

How a foreclosure will affect your creditworthiness

If your credit report shows foreclosure, it essentially means that you have been late with your payment at some point. Your payment history has the highest weight on your credit score. This causes lenders to believe that if they give you credit, you are less likely to pay them back. Depending on the timeliness of the late payment, your creditworthiness can drop by well over 100 points.

Foreclosures are referred to as derogatory events in rating systems like FICO and VantageScore. The actual impact on creditworthiness will vary by rating system and consumer. In either case, foreclosure can be problematic.

In some cases, after a foreclosure, you may not be eligible for a home loan backed by Fannie Mae and Freddie Mac for several years. This mandatory waiting period can keep you out of the real estate market for up to seven years. Even if your credit does recover during this time, you will have to wait for this penalty period.

A foreclosure will remain on your credit report for up to 7 years. The good news is, over time, the negative effects will become less severe.

Does a foreclosure on my credit report fall off?

As with other negative marks, a foreclosure won’t stay on your credit report forever. A foreclosure may be overturned seven years after the date of the first missed payment that resulted in your default. This is known as the First Insolvency Date (DoFD) in relation to the credit report.

Therefore, a correctly reported foreclosure will be removed no later than seven years after the DoFD. This deletion process is automatic and there is no need to notify the credit bureaus. The exception is that if something is wrong with the foreclosure report, you will have to go through the dispute process to alert the credit bureaus.

What about a short sale?

When the lender is willing to accept less than the amount still owed for a mortgage loan from the sale of the property, it is called a short sale. Two things must happen for a short sale to take place:

  1. The borrower cannot make up on his mortgage payments because he is so far behind
  2. The house is worth less than the remaining balance of the mortgage due to current real estate market conditions

Lenders will use a short sale as an option to avoid foreclosure. If your lender gives you permission to sell your home for less than you owe, how it appears on your credit report depends on your lender. In most cases, a short sale will be treated as a foreclosure so it will stay on your credit report for seven years.

3 steps to removing a foreclosure from your credit report

A foreclosure can be removed from your report for a number of reasons, including:

  • It has been more than seven years since the DoFD
  • The lender is no longer in business
  • A voluntary discharge took place
  • The servicer has given inaccurate information about foreclosure.

If any of these scenarios occurred in your situation, there are steps you can take to get rid of the foreclosure. Here are the three steps of the following process.

Step 1: Find the information that is inaccurate in your report

There are three major credit bureaus: Transunion, Experian, and Equifax. You need to check your credit reports from all three. Look for the foreclosure entry on these reports to determine the inaccuracies. The account balance, the opening date, the account number and the name of the lender should be looked at among other things.

Make a note of the discrepancies that you find. You would then like to dispute the entry from all three offices. You need to check that the entry is correct. Otherwise, it must be updated to an accurate status or removed from your report within 30 days. When filing your dispute letter, look out for the Fair Credit Reporting Act (FCRA), which requires only accurate information to be reported by credit reporting agencies.

Step 2: Discuss the inaccuracies with the lender

If your dispute with the credit bureaus doesn’t end with the foreclosure waiver, your next step is with the lender. Write a letter to the lender stating that the foreclosure stated on your credit report is incorrect. Request that it be removed from your report.

In your letter, indicate that you will take further action if the foreclosure is not lifted within 30 days. Make sure to send in any supporting documentation you have.

Step 3: work with a professional for help

If you are pressed for time or prefer to have an expert on your behalf, consider hiring a credit repair company. You can work with the credit reporting agencies and lenders on your behalf to remove a foreclosure from your credit report. A reputable credit repair company will work with people like you on a regular basis so that they understand the process well. Additionally, they may be able to provide guidance or otherwise improve your credit score.

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