Foreclosure's Effects on Personal Credit

Countless home loans were issued during the "housing bubble" of years past, often times to people who could not comfortably afford the expense incured by a monthly mortgage payment. As the economic situation has progressed to the point of recession, many people are asking the question – How will a home foreclosure effect my personal credit?

The answer to this question is dependent on several specific factors. In most cases, the true severity of the effect of home foreclosure depends on a person's overall credit report. It is undeniable that a foreclosure will have a negative effect on a borrower's credit report, which may or may not prevent them from getting any future financing. If a borrower already has several late payments recorded on their credit report, a foreclosure will most likely cause their credit to drop significantly, probably into the "sub-prime" (below 600) credit zone. This, in combination with the foreclosure being recorded on a person's credit report for the next seven years, will probably prevent an individual from being able to borrow money from any reputable institution for quite some time.

However, it is possible to survive a home foreclosure with only moderate damage to your credit report. If you have a fairly clean credit history, and no late payments, a foreclosure will not has as devestating of an impact on your credit as it would if you had less-than-perfect credit history. The reason for this, is that when potential lenders view your credit report in the future, the negative impact of the foreclosure is off-set by the positive credit history established through good financial behavior. Making loan payments on-time, paying off credit card debt, and avoiding having debt with collection agencies are all great ways to ensure that your credit is as reputable as possible.

With all of this being said, it is still strongly advised to avoid a home foreclosure at all costs. Most mortgage companies will be willing to work with you to help you make your monthly payments, since they will lose significant income if your home is foreclosed upon. If you find yourself in a situation where you may be facing foreclosure, it is best to do a bit of research, and weigh all of your available options.