How Foreclosure Affects Chicago Homeowners’ Credit Scores
Everyone wants to know if bankruptcy will leave a black mark on their credit score. Yet few seem to consider the credit consequences of foreclosure.
This month we talked about bankruptcy's impact on credit - initially, filing can drop your score by a one or two hundred points. Of course, as your debt disappears, you have can begin improving your score - often to a whole new high. As Chicago bankruptcy attorneys point out, many clients qualify for credit cards or loans right after filing.
Foreclosure, on the other hand, is a whole other ball game. Let's take a look at what happens when you fail to make those mortgage payments.
After the first delinquency, your score could drop up to 100 points. Go 90 days without sending a check, and you're looking at 135 points. By the time you're in the midst of a foreclosure, deed-in-lieu or short sale, your credit score could have declined 160 points - similar to what happens immediately after filing for bankruptcy, according to CNNMoney.com. Of course, that's on top of whatever your number was before you became delinquent - and if you had to stop making mortgage payments, chances are your finances weren't in the best shape to begin with.
Here's the difference between bankruptcy and foreclosure. When your score drops due to bankruptcy, it's all part of a purging process. Once creditors see you have an approved plan to lower debt - and especially once you start making payments to erase those debts - your score is free to begin a steady climb upward. Without the stress of too much debt, things like paying the bills and staying below your credit limit become much easier - meaning you no longer have to worry about mistakes like late payments dragging down your credit.
When your score drops because you lost your home, however, you fail to resolve the issues that led to foreclosure in the first place. Sure, you don't have to pay the mortgage, but since you're without a home you'll eventually have to pay rent. And because a big chunk of your credit score rests on what kinds of debt you have - including the good kind - not having that home loan can really hurt.
But maybe the best part about bankruptcy is that it can often stop foreclosure. What can losing your home do for you? Nothing. File for Chapter 13 bankruptcy, however, and you can take advantage of the automatic stay, a legal action that protects your home from lenders. So instead of worrying about when that foreclosure notice is coming, you can focus on eliminating debt with an affordable payment plan and getting your finances back into shape. Have questions about bankruptcy and foreclosure? A Chicago bankruptcy attorney can provide you with answers when you sign up for a free one-on-one debt analysis.