How Much Will A Foreclosure Hurt My Credit Score? Part 1
If life has dealt you a difficult hand and you are facing a foreclosure, you may be trying to make peace with the situation and move on. You’re asking yourself questions such as, “What happens next?” and “How does this affect my credit score?”
The truth of the matter is that you don’t need to resign yourself to foreclosure, which is one of the worst things that can happen to you financially. Even if you know you won’t be able to start paying your mortgage again and you think all hope is lost, there are ways to salvage the situation. At Gateway House Buyers, we buy houses for cash in Clarksville, TN and have helped many families avoid the havoc that foreclosure will wreak on your credit score.
How Does a Credit Score Work?
To understand how foreclosure would affect your credit score, it is important to understand how credit scores are calculated in the first place.
Your credit score is comprised of data from your credit report, which includes the following evaluations:
- How long is your credit history?
- How many different types of credit do you have?
- How many debts do you have and how much do you owe on them?
- What is your payment history in regard to these debts?
- Have you ever applied for new credit?
- Have you been through a foreclosure?
- Have you declared bankruptcy?
Using the answers to these questions, credit scoring companies utilize technologies that analyze this data and come up with a credit score based on this information. Since there are a number of different credit scoring companies that all use their own methods, your score may vary depending on which company you consult.
FICO is the largest and arguably most trusted credit scoring company. They use a scoring range from 300 to 850.
Why is a Credit Score Important?
A credit score is important because it is the official measure of how likely you are (or aren’t) to default on your loan. Your credit score will be taken into account before you are able to get a car loan, home loan, personal loan, or even enter into certain agreements that don’t involve lending of money (such as a rental lease). Some employers even look at your credit score to help judge how responsible you are with financial resources.
Now that we have covered the importance of your credit score, we will discuss how a foreclosure impacts your credit score in part two.