Foreclosure is a legal process in which a lender repossesses a property due to the borrower’s inability to make the required monthly mortgage payments. This process can have a significant impact on your credit score, as it is a negative mark on your credit history.
A foreclosure can lower your credit score by several hundred points and remain on your credit report for up to seven years. This can make it difficult to obtain future credit, such as a car loan or a mortgage. It can also result in higher interest rates and fees. Therefore, it’s important to understand the process of removing a foreclosure from your credit report.
While it can be difficult to prematurely remove a foreclosure, it’s not impossible. If you’re close to the date it should automatically drop off, you may also consider waiting. No matter what plan of attack you choose, we’ll take you step-by-step to figure out the best course of action.
How long does it take to get a foreclosure off your credit report?
When you’re deciding the best way to remove the foreclosure from your credit report, check the date to see when it should naturally fall off. In most cases, it’s scheduled to stay on there for up to seven years from the date the foreclosure was filed.
If you use the date of your first missed payment as your benchmark, you’ll be disappointed. Check your old paperwork and find out when the filing date was.
From there, figure out how close you are to reaching the seven-year threshold. You may be relatively close to having it drop off. If that’s the case, it may be worth simply waiting instead of going through the dispute process. Review your financial goals and see if it’s possible to wait on making any decisions that would be impacted by having a foreclosure on your credit report.
For instance, could you hold off on applying for a new credit card or loan? You could potentially qualify for a better rate if you don’t have much longer to wait to get that boost for your credit score.
However, if you’re not anywhere close to the seven-year mark, you may be able to take matters into your own hands.
Understanding the Process of Removing a Foreclosure from Your Credit Report
How Credit Bureaus Report Foreclosures
When a foreclosure occurs, the lender will report it to the credit reporting agencies, such as Equifax, Experian, and TransUnion. The credit reporting agencies will then add the foreclosure to the borrower’s credit report, which can significantly lower their credit score.
How Long It Takes for a Foreclosure to Show Up on Your Credit
Foreclosures typically take several months to complete, and once the process is finished, the foreclosure will appear on the borrower’s credit report for up to seven years. The time frame for a foreclosure to appear on your credit report may vary depending on the state you live in and the laws that govern foreclosures in that state.
Foreclosure vs. Short Sale or Deed-In-Lieu of Foreclosure
A short sale occurs when a lender agrees to accept less than the full amount owed on the mortgage and allows the borrower to sell the property for less than the outstanding balance.
A deed-in-lieu of foreclosure, also known as a “friendly foreclosure,” is when a borrower voluntarily transfers ownership of the property back to the lender in exchange for the lender forgiving the outstanding mortgage debt.
Both a short sale and a deed-in-lieu of foreclosure can also negatively affect a borrower’s credit score, but they are not as severe as a foreclosure and may not remain on the credit report for as long as a foreclosure.
How to Remove a Foreclosure from Your Credit Report
It’s possible to dispute a foreclosure on your credit reports with the three credit bureaus and potentially get it removed early. While there’s no foolproof solution, there are four specific strategies you can undertake to increase your chances of success.
Here is our step-by-step process for getting that foreclosure deleted from your credit report for good.
1. Dispute the foreclosure with the credit bureaus
First, you need to see if there are any errors related to your foreclosure listed on your credit reports. Start by ordering your free credit report from each of the three major credit bureaus; Equifax, Experian, and TransUnion.
You’re entitled to these free credit reports once every 12 months, so take advantage of this benefit at AnnualCreditReport.com. With your credit reports in hand, review each line of the foreclosure listing for accuracy.
Don’t just look at the balance amount — check out every detail surrounding your account. That means reviewing all the dates associated with the foreclosure, the account number, and even the name of the lender.
The next step in removing a foreclosure from your credit report is to dispute it with the credit bureaus. You can do this by sending each credit bureau a dispute letter.
Once they receive your credit dispute letter, they’re required to request verification of the information within 30 days.
What happens if the foreclosure information isn’t verified within that time frame?
The credit bureaus must remove the foreclosure from your credit report. If the credit bureaus do verify information concerning the error, they’re equally responsible for updating your credit report to reflect the accurate data.
2. Provide documentation to prove the foreclosure is incorrect or outdated
This step is optional. When you dispute a foreclosure with the credit reporting agencies, you can provide them with documentation that supports your claim if you have it.
This documentation could include proof that you have already paid off the mortgage, proof of a mistake on the part of the lender, or proof that the foreclosure was the result of identity theft. Make sure that you have copies of all relevant documents, and that they are legible and easy to understand.
Keep in mind that the burden of proof is on the credit bureau, so you don’t have to provide evidence. However, it would help if you had it.
3. Consider hiring a credit repair company
Another option for removing a foreclosure from your credit report is to hire a professional credit repair company. These companies specialize in helping people improve their credit scores and can help you dispute a foreclosure with the credit reporting agencies. They can also help you negotiate with your lender to have the foreclosure removed in exchange for a payment.
When you work with a reputable credit repair company, you get to take advantage of legal professionals who understand the intricacies of the Fair Credit Reporting Act and other consumer laws. They have years of experience dealing with the three credit reporting agencies and creditors.
A credit repair professional can help you dispute and potentially remove negative items such as late payments, charge offs, collections, repossessions, civil judgments, tax liens, bankruptcies, and more.
Credit repair companies generally offer a free credit consultation, so you can get an idea of whether they’ll be able to help your specific case before making a commitment. If they can, your chances of getting that foreclosure deleted from your credit reports are much better. Credit repair services have success-driven processes in place to create a strategy tailored to you but also based on proven results from the past.
4. Negotiate with Your Lender to Have the Foreclosure Removed
If your dispute with the credit reporting agencies is unsuccessful, you may be able to negotiate with your lender to have the foreclosure removed in exchange for a payment.
This could include paying off the outstanding mortgage balance or making a lump sum payment to the lender. Keep in mind that your lender may not be willing to remove the foreclosure, but it’s worth asking.
You can also write directly to the mortgage lender who initiated the foreclosure proceedings. Just as you did with the credit bureaus, cite any inaccuracies listed on your credit report. Be forceful and flat-out tell them to remove the entry within 30 days.
Oftentimes, mortgage lenders either can’t verify the information because of poor record keeping, especially if the outstanding debt has been passed around to various collectors. Alternatively, they may just be too busy to make it a policy to investigate every single verification request that comes through their doors.
Either way, you may benefit from either of these scenarios by getting your foreclosure removed from your credit report directly by your lender. As always with any credit dispute, be sure to keep paper copies of all communications between you and the lender. This helps clarify any agreements that may be called into question later.
How much does a foreclosure affect your credit score?
A foreclosure can have a major impact on your credit score. Unfortunately, the better your credit score was to begin with, the more damage is caused by having such a serious item added to your report. Prepare for a drop anywhere between 85 points and 160 points using the FICO scale.
In addition to a poor credit score, a foreclosure can make it tough to get access to new credit, especially early on. Regardless of what your credit score ends up being, lenders and credit card companies will automatically be hesitant to issue new credit.
Luckily, a foreclosure won’t impact your credit history forever, especially if you implement a credit repair plan right away. That means paying down any other debt you have and making on-time payments of your other bills to rebuild your positive payment history.
Even though the foreclosure could potentially stay on your credit report for seven years, its impact on your credit scores actually starts to diminish more and more each year. So while you’re likely to experience a big dip when the foreclosure first gets added, the damage to your credit scores continues to lessen despite lenders being able to see that item listed.
It takes time, but with some patience and consistent positive financial behavior, you’ll begin to rebuild your credit history and get back on track.
Can you buy a house with a foreclosure on your credit report?
In many cases, you don’t need to wait the full seven years for a foreclosure to fall off your credit report to buy a new house. Depending on the type of mortgage loan you choose, you could qualify for a new home loan in as quickly as two to three years from your filing date.
You’ll have a better chance of qualifying if your foreclosure was a result of a financial hardship, such as a medical illness, divorce, or unemployment. If your foreclosure was a result of poor financial management or a high adjustable rate mortgage, you may have to wait longer.
You’ll have better luck with a government-backed loan such as an FHA compared to a conventional mortgage. If you’re serious about putting your homeownership goals on the fast track, consider talking to a mortgage lender about your situation. That way, you can get an idea of what you need to do to qualify, what your options are, and how fast you can start applying.
Plus, you can get a clearer idea of what kind of rates and terms to expect, since a foreclosure history will almost certainly cause you to get higher interest rates. When you talk to a lender directly just for gathering information, you can get a lot more details than you would by applying online. You also don’t have to worry about an application dragging your credit scores down even further.
A foreclosure can certainly feel like a devastating life event, but you don’t have to suffer from its effects forever. Not only is it possible to get the foreclosure removed from your credit report early, it’s also possible to move on with your life and start working towards new goals.
Rather than feeling roadblocked by a past foreclosure, create a comprehensive plan to move forward. Try our three strategies for getting that negative item from your credit report. At the same time, be sure to understand how your credit score works so that you can implement the financial decisions that will help you holistically rebuild your credit over time.