- 1 how much does a foreclosure hurt your credit
- 2 how much does a foreclosure hurt your credit
- 3 Not Only Did You Lose Your House—Your Credit Score Is a Mess After a Foreclosure
- 4 10 Really Surprising Things That Can Hurt Your Credit Score
how much does a foreclosure hurt your credit
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Hi Erica, Last week, I received a collection notice addressed to my old married name. Citibank said I owed $9,000. I wrote a note on the letter that this was not my account and sent it back to the collection agency. I also double-checked my credit report, which I print out once a year, and this account was nowhere to be found. Then, yesterday, I received an actual statement from Citibank for this same account! I called the number on the statement. It turns out that someone did indeed open this account in 2003. The Social Security number is different but they had my phone number attached to it somehow.
The 7-Day Hypnosis Plan: Does It Work for Weight Loss?
On today’s show, renowned hypnotist Paul McKenna shared his 7-day plan for weight loss using hypnosis techniques. The mind is the most powerful organ and using it to achieve your weight-loss goals can prove highly effective. You could lose twice as much weight with hypnosis as you would using most other techniques alone! However, the concept is very controversial. The medical community still doesn’t officially recognize hypnosis as a valid method of weight loss. But there are many doctors who use it in their practice. Hypnosis involves the induction of a trance state.
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CREATE, COMPILE, CONSTRUCT plus PROTECT YOURSELF FROM IDENTITY THEFT I want to thank you for showing an interest in my service. When I was working within the system at the credit bureau we would always be confronted by people who paid hundreds and even upto tens of thousands of dollars to have their bad credit erased. And to their surprise nothing was ever removed. The reason why is because no one, I repeat, no one can erase anything off your credit report that was correctly placed there. Out of ten years of working with credit I had never seen or heard of anyone who was ever able to do this.
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how much does a foreclosure hurt your credit
Collection accounts are derogatory entries on your credit report, but a collection account isn't like a bankruptcy or foreclosure, which are the financial equivalent of Monopoly's "Go directly to jail, do not pass Go, do not collect $200" card.
In Joe's case, his good credit rating caused his credit score to go into free fall from a single collection hitting his credit report while a collection hitting Jane's credit didn't have that much of an impact. The degree to which a collection hurts your credit score – and how many points you can expect to lose – is directly related to how high your credit score is when the collection agency reports the debt. The higher your are, the greater the fall.
Estimating the Damage Collections Do to Your Credit Rating
As much as you'd like to know ahead of time how much damage a collection account will do to your credit rating, estimating the damage is just that: an estimate. Each piece of information on your credit report affects your score to a different degree. Thus, two people with the same credit score may have drastically different results should the same collection account for the same amount hit their reports. On average, with an average credit rating, an individual may suffer anywhere from 50 to 75 points of damage, but that's just a ballpark figure. As I stated before, everyone is different.
One thing most debtors don't realize is that the amount they owe a collection agency influences whether or not their credit scores take a nose dive once the entry hits their credit files.
Not Only Did You Lose Your House—Your Credit Score Is a Mess After a Foreclosure
"Foreclosure" is a frightening word for a number of reasons. Topping the list? If you’re unable to make your mortgage payments, you’ll lose your home.
However, the misery doesn't end there. Foreclosure ripples out and affects your credit score, which can hurt your chances of qualifying for a new loan—or another home—in the future.
A foreclosure appears on your credit report and leaves a dingy residue that can seriously damage your credit score.
"A mortgage is considered one of the safest forms of credit but is also typically one of the largest debts a person ever has, so when you stop making payments, or are late on a payment, you will see a large drop in your scores," said Rod Griffin, director of public education for Experian.
While it's impossible to pinpoint exactly how many points your credit score will plummet after a foreclosure, it might be enough to drop your score from the prime to subprime range. “A consumer could drop credit tiers following a foreclosure. [It depends] on the consumer’s credit history prior to the foreclosure and if there are other negative factors contributing to a drop at the time of foreclosure,” Griffin said.
And while some of the negatives will diminish over time, a foreclosure will linger on your credit report for seven years from the filing date.
Getting your credit score back on track after a foreclosure boils down to following a simple philosophy: Keep it positive.
"Because negative information is deleted eventually, you can rebuild your creditworthiness if you take control of your debts and build a history of positive payments that will continue to appear after the foreclosure disappears," said Griffin.
"A foreclosure in your credit report is typically looked at by lenders as very negative. It may not be as bad as bankruptcy, but not paying your mortgage and losing your house is very close," Griffin said.
If you apply for credit cards, department store cards, or other loans, you may find lenders aren’t as willing to extend credit as they once were. And when you do get approved, you'll likely face higher interest rates, higher annual fees, or more onerous terms than you would have before your foreclosure.
If you think you're back on solid financial footing and want to buy again, jumping back into the homeownership saddle is near impossible shortly after a foreclosure. All mortgage loans have a waiting period after a foreclosure before you're able to apply for another loan:
- Conventional loans require a seven-year waiting period.
- Loans backed by the Department of Veterans Affairs require a two-year waiting period.
- Loans backed by the Federal Housing Administration require a minimum of one year.
It's tough to rebound from a foreclosure and become a home buyer again, but the devastating effect of defaulting on a loan has a more immediate (and negative) impact on your credit score.
For more smart financial news and advice, head over to MarketWatch.
10 Really Surprising Things That Can Hurt Your Credit Score
Most people know the typical credit no-nos:
Don’t make a late payment. Don’t allow an account to go into collections. Avoid tax liens, bankruptcies and foreclosures.
And of course, paying off credit card debt should be one of your top financial priorities.
But there are also lesser-known ways you could unintentionally damage your credit score.
Here are ten actions—from least to most harmful—that could make your number take a plunge.
While many rental agencies require that you pay your deposit with a credit card, some will accept your debit card instead. However, agencies typically have a clause in the contract stating that they can pull your credit report if you choose to pay with a debit card. That credit check causes a hard inquiry, which can ding your score a few points.
A hard inquiry is when a lender, credit card issuer or other financial institution requests a credit check in order to decide whether or not to extend a line of credit to you, such as a credit card or home loan. Each hard inquiry usually drops your credit score by a few points and will remain on your credit report for two years. The other kind of inquiry, soft inquiries, are made by people who don’t intend to take action, such as your landlord checking your credit, and won’t have any effect on your credit score.
While it could be a good idea to ask for a limit increase on your credit card (and might help your credit score in the long run), it could also damage your score in the short-term if it initiates a hard credit inquiry. When calling to request a limit increase, make sure to ask first if it will initiate a hard or soft inquiry on your credit report. Each institution handles it differently.
8. Applying for an Account at a Credit Union
With lots of people moving their money from big banks to smaller credit unions, it’s important to know that opening that new account could cause a hard inquiry. Before applying, ask whether or not opening a new account will involve a hard inquiry into your credit report. The inquiry isn’t unique to credit unions—most institutions conduct a hard inquiry when you open a new account.
(For more on whether moving to a credit union could be a good move for you, read this.)
Opening a new mobile account could also initiate a hard credit inquiry. Although each hard inquiry shouldn’t drop your score too drastically, you’ll want to be careful not to initiate too many in too short a time, or else these little actions can really add up.
It used to be that business credit card activities didn’t show up on your credit report, but that’s no longer true. These days, all major credit card issuers require that you provide a “personal guarantee” when applying for a business credit card. That means you’ll essentially be a co-signer with your company on the card. Your company may be responsible for paying the balance, but your credit will take a hit if you fail to keep up with the paperwork or they default on a payment. If you work for a small, young business and need a business card for work expenses, first ask if you’ll have to provide a personal guarantee. If the answer is yes, you may instead want to use your own credit for business expenses and fill out expense forms.
If you have a credit card account in good standing that has zero activity over a long period of time, your credit card issuer could choose to close your account due to inactivity. If you’re not using it, you may not notice that your account has been closed until your credit takes a hit. The reason this would hurt your score is that it would be bad for your credit utilization ratio. For more on what that is and why it matters, check this out.
If you’re in the midst of a credit dispute, some credit score algorithms may not take the disputed credit line into account when calculating your score, so a credit check done on your profile during that time could cause your score to be lower than it would be if the disputed account were included. Why? Again, by lowering your total “available” credit line, your credit utilization ratio would change, and not for the better.
A small, local furniture retailer may offer to let you finance a purchase … but if you accept the loan, it can hurt your credit because it’s considered a “last-resort” loan, which may make you look like a higher credit risk. Additionally, your credit could suffer from the high balance being reported on your credit.
For instance, say you apply for credit to finance a $1,400 couch. You get a great offer: no payments and 0% interest for 18 months. You take a few months to start making payments, and in the interim you have a new line of credit on your credit report. The new line will essentially be maxed out, because the limit will be $1,400 and your balance will be $1,400. Your credit utilization rate, therefore, would be negatively affected.
It may seem like a good idea to get rid of an old credit card, but it can decrease the length of your credit history and increase your credit utilization rate, both of which can lower your credit score. In particular, we generally suggest you avoid closing your oldest credit card, since that long credit history is an asset you’ll want to hang on to.
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Some jurisdictions turn over unpaid parking tickets to collections agencies. Having an account in collections severely decreases your credit score. More and more municipalities have been sending unpaid parking ticket information to collection agencies recently, in an effort to close budget gaps.
This year, Chicago and the suburbs of Washington, D.C. have started pursuing unpaid tickets this way. New York City, which has nearly $700 million in overdue parking fines, does this, too. To find out if your city gives unpaid tickets to collections agencies, search on its .gov homepage or call the Department of Revenue. Keep in mind that this includes parking tickets you may have incurred as an out-of-state visitor!
These rules governing your credit change from time to time. Something that didn’t affect your credit several years ago could now factor into your profile due to recent government legislation. Keep up-to-date on which actions can have negative credit impacts by monitoring your credit score at CreditKarma.com.
Credit Karma™ is a completely free credit management service that provides free credit scores, financial education, and personalized savings recommendations. We help more than 3 million consumers realize the everyday cost savings of having a good credit score.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.
I have real problems with the fact that some of these can affect your credit score, and hence what you pay for insurance, for example, since that is largely based on credit scores these days.
#4 Maybe you have a legitimate complaint. Is it better to just shut up to not hurt your credit score?
#5 I’m not working full-time these days so don’t use several of my cards. Isn’t that more responsible than spending money I don’t have and know I won’t be able to pay back any time soon?
#3 Maybe I can get 0% financing by purchasing furniture with store credit – I’ve done this several times and paid it off before the end. Doesn’t that make more sense than paying interest to a credit card company?
A lot of your points seem slanted toward what’s best for the credit card companies, not what’s best for the consumer. Why are we allowing them to run our lives?
I’m not the author so I can’t promise my interpretation is correct, but I think the point of the article is to let you know that these are things to bear in mind, especially if you are about to try to get approved for, say, a car loan or a mortgage. These aren’t things that do irreparable harm to your credit score, but they do have a short-term impact that could affect your the interest rate the lender gives you, or even your ability to get a loan at all. So if you’re about to apply for a mortgage, it’s probably not a good idea to take out a line of credit with a furniture store. If you know you won’t be applying for a big, important loan in the near future and your credit score can take that temporary hit, then of course it makes sense to take advantage of a 0% financing offer.
And regarding not using your cards at all – you could always treat them as debit cards. Use them to pay everyday expenses such as gas or groceries, but pay it off in full each month, or even once a week. Then you’re preventing the card(s) from going inactive, but not spending money you don’t have either. Bonus: if they offer rewards you could actually end up with MORE money by getting gift cards or cash back. (But of course, only do this if you have faith in your ability to accurately track your spending and pay off each bill before you ending up having to pay interest.)
You’re probably right on all your points. I just get really tired of the power that credit card companies have over our lives, the fact that we have to constantly think about what will or won’t affect our credit scores. I’ve had credit card debt in the past – now paid off – and am quite happy to not use credit now. Then again, I already have a mortgage and drive an old car, so my credit score isn’t as important to me as it once was.
I am a big fan of LearnVest (recommend in all of my workshops and trainings) but I have to say that # 8 (applying for a credit card at the credit union) is very misleading. I know you go on to say that this is true for all NEW credit applications, this is in stark contrast to the wording on #2.
If someone were to read the headings without the detail (as we KNOW many people do) this could be misleading and create confusion about credit union accounts. Causes me to wonder about the motivation as I REALLY hope this service remains a trusted and unbiased resource.
You’re right; it could be misleading. I think the point here, though, is the timeliness. A lot of people are moving their money to credit unions right now, perhaps without thinking about how it can affect their credit. If opening an account at a credit union is right for you (as it is for many people), you should be aware of how it could affect your credit so you’re not surprised by the appearance of a new credit inquiry. That’s all.
I recently got a card with a dept. store to get the 10% discount. I later realize the interest rate is at 26.99%. Would it hurt my credit rating if I immediately pay it off and cancel it ?
I’d just use it for small purchases and pay it off in full each month. I have store cards for both Kohl’s and Best Buy for the purpose of getting discounts. I knew full well that the interest rate would be terrible (most store credit cards are), but I also knew I wouldn’t carry a balance unless it had 0% financing (such as the laptop I bought in June – and I’m even paying that off early). If you don’t think you have the self-discipline to keep purchases low and/or pay if off each month, I’d say your better off cutting up the card and not using it, but if you close the account it could hurt your credit utilization rate, and your score already took a little hit from the hard credit inquiry from when you opened the account.
I have a debit card and a credit card for extreme emergencies only. I use my debit card to avoid carrying a lot of cash. But I treat it like just I would a credit card “carefully”. Remember cash is still king folks. Especially during the holidays it’s so easy to overspend. So the bottom line is we have to be smart about how we handle our money and credit cards. I wish you all a Merry, Merry Christmas and a Happy New Year. But really folks it takes discipline to manage your wealth. And you’re wealth is not only your finances, but your mind, spirit and body. That’s you’re wealth.
Some of these rules are abusive. We should demand that our elected representatives change some of them. When you pay OFF a credit card, it should not count against your score. And it is highly discriminatory to have your score suffer because you’re doing business with a credit union instead of a bank. Perhaps the credit unions will come up with some SANE standards and develop their own credit scores? I’d like that!
You wrote, “It may seem like a good idea to get rid of an old credit card, but it will decrease the length of your credit history and increase your credit utilization rate, both of which can lower your credit score.”
Who told you that closing an account decreases the length of a person’s credit history?
Closing your oldest card will shorten the length of your credit history, in regards of your credit score. For the purposes of your credit score, your credit history length is calculated by averaging the age of your open credit accounts. Thus, closing that old card will remove its length from the total, reducing your average credit history length, thus hurting your credit score through reducing that value.
According to Fair Isaac, the FICO score company: “Closing an account doesn’t make it go away” and “A closed account will still show up on your credit report, and its history will be considered by your FICO Scores.”
Who is your source? Or, what is your evidence?
Well, in fact, the higher your credit score, the more detrimental a negative action can have on your credit rating. Typically, consumers with less than perfect credit history
already have particular patterns of credit usage factored into their scores. On
the other hand, what happens to consumers with very good credit is quite the
opposite. The scoring model views a negative occurrence as a sign the consumer
is heading for financial trouble because negative records on your report are
atypical. Also, transferring your credit balances to one card may sound
reasonable, especially if that card has rather low introductory interest rate. This
practice can seriously hurt your credit score as carrying a high balance changes
your credit utilization index.
I just started to use CreditKarma.com and when I first registered for their site, my credit was 777. They told me in my “credit councelling” that I would benefit from opening another credit card with 0% interest for 18 months on balance transfers and I could save $4,000 over the next 3 years by doing so. I opened up the credit card, transferred some of my smaller balances onto the card leaving me with two cards with high balances and 0 balances on the other….my credit plunged to a 699! Thanks for nothing CreditKarma…douchebags
I have a car loan that the car is not wort what I am paying the car is breaking and the company is not willing to fix it but the most important is that this loan is steadily bringing down my credit score I want to take the car back and just pay off all my other loans and bills what should O do
credit is a trap to keep you spending and in dept….if you dont spend they wont trust you..but even if you had years of paying off depts. they want active recent depts…financial responsibility to be dept. free and out of depts. not rewarded at all…i dont agree with how some of these impact your score like parking tickets, thats just wrong!! or using your debit card…the car rental places never tell you this at all…i just learned and never knew this sneaky practice..nobody should be able to do a hard inquiry on you without your full approval and signature…they hide or rush you through the fine print!
my advice i share about collection agencys:
if you ever call to settle a collection, ”always always” ask for a complete ”deletion” before you ever pay. they all will say we dont do deletions, yes they do! then they will say we will mark it paid/closed, people thats not good enough as it is still seen as a negative on your credit report for years still and your still punished…so i will never pay one unless they write in a letter first they will do the full deletion…just my experience to help!
I got approved to finance a tv but dont have the tv in my possession. I cancelled the order. In fact, i didnt sign any agreement. Can this still hurt my credit?