How Long Does it Take For your Credit Rating to Recover from a Foreclosure?

If you are facing a foreclosure you probably have millions of questions that need to be answered. One of the most frequently asked questions is how your credit score will be affected by foreclosure and how long it will take for your credit score to recover from a foreclosure. There really is no simple answer as it would be dependent on your spending history and how well you keep up with your other creditors during and after the foreclosure.

In general it is rumored that your credit score will drop around 260 points from a foreclosure. This means that even if you have an excellent credit score it will be dropped to a negative rating. A foreclosure will remain on your record for seven years, at which point it will fall off your record.

The good news is that even with a foreclosure on your record you may still be able to buy a home after a few years. Generally speaking many creditors will begin to trust you again after around 2-3 years for small loans and credit cards if you show a solid work history and continually pay your other creditors on time. After around five years many creditors will even finance a home purchase. The stipulation is that if you have a foreclosure still on your record you will probably have a very high interest rate.

Foreclosure should be your very last option if you can avoid it. There are many alternatives to foreclosure that you can explore before you lose your home. Some other options you could research are short sales, deeds in lieu, and cash for keys.

If you want to keep your home you can try to negotiate with your lender for a loan modification. A loan modification can be made by lowering your interest rate, extending the life of your mortgage, or both. This would bring your payments down to something that you can afford. Often a loan modification will not lower the actual cost of the loan; it would just be modified so you can make the payments. In other words if you owed $325,000 with a monthly payment of $2,600 with 15 years left on the mortgage, a loan modification may stretch the loan life to 30 years and cut your payments down to $1,300 a month. A stipulation to loan modification to be approved is that you would have to explain why you are in need of the modification and show that you have a steady job to make the promised payments.