How to Remove Foreclosures from Your Credit Report
October 26, 2023 | 8 min read
October 26, 2023 | 8 min read
Foreclosures can wreak havoc on your credit profile. Not only do they have the potential to drive your credit scores downward, foreclosures on your credit reports can be a major obstacle when you’re ready to purchase another home.
Under normal circumstances, a foreclosure may stay on your credit report for up to seven years. But there are a few potential ways to see a foreclosure removed from your report sooner—especially if the account contains inaccurate information.
Mortgages are secured loans. The home you are buying is your asset. It serves as collateral to help you secure financing. If you don’t keep up with your monthly payments, there’s a danger that the lender could seize your home to satisfy the debt you owe. When you default on a mortgage and the lender starts legal proceedings to take your home away, the process is known as a foreclosure.
In general, you need to fall at least 120 days behind on your mortgage payments before a lender will begin foreclosure proceedings on your home. Once the proceedings begin, the mortgage lender or servicer will typically report the foreclosure to the three major credit reporting agencies—Equifax, TransUnion, and Experian.
After the lender reports a foreclosure notation to the credit bureaus, it will often show up on your credit reports within 30-60 days. According to the Fair Credit Reporting Act (FCRA), the federal law that regulates the credit reporting agencies, a foreclosure can stay on your credit report for up to 7 years.
The 7-year clock doesn’t start the day the lender begins foreclosure proceedings. Instead, it starts counting down with the first late payment that leads to the mortgage default. This is known as the original delinquency date.
Foreclosure is a legal process that occurs when a homeowner defaults on their mortgage payments, leading the lender to repossess the property. Here’s what typically happens during foreclosure:
Foreclosure has serious consequences, including the loss of the home and a negative impact on the homeowner’s credit. It’s crucial for homeowners facing financial difficulties to seek assistance and explore options to prevent foreclosure, such as loan modifications or refinancing.
In terms of credit scoring, a foreclosure is a major derogatory event. When a foreclosure appears on your credit report it may cause severe credit score damage. Yet, although a foreclosure is certainly negative, it’s difficult to pinpoint the exact number of points your credit score may decline whenever one is added to your report.
Scoring models from FICO and VantageScore won’t simply lower your score by a specific number of points when new negative information appears on your credit report—foreclosure or otherwise. Rather, a scoring model will consider all of the information on your credit report collectively and assign your credit score from there.
For example, if your credit score is high and your report is clean aside from the late payments that proceed your foreclosure, the addition of this new negative information might have a major impact on your credit score. Yet if your credit report and score is already in rough shape, a new foreclosure might not impact your score as much as you expect.
To help you visualize the fact that credit actions can impact different people in different ways, FICO provides a few examples. The table below shows how mortgage late payments or a foreclosure might affect the credit scores of three different people with FICO Scores of 680, 720, and 780.
|Starting FICO Score||30-Day Late on Mortgage||90-Day Late on Mortgage||Foreclosure|
A short sale is a type of settlement in which your mortgage lender lets you sell your home for less than you owe on your loan. Yet although a bank may agree to a short sale in order to avoid the expensive, time-consuming process of a foreclosure or potential bankruptcy filing, that doesn’t mean that a short sale won’t hurt your credit.
In terms of credit reporting and scoring, a short sale can potentially damage your credit just as much as a foreclosure. Yet if the short sale results in a $0 balance on your credit report, its impact might be slightly less severe than a foreclosure.
Building on the examples above, FICO reveals how the same three people (starting FICO Score of 680, 720, and 780) might be impacted by a short sale versus a foreclosure.
|Starting FICO Score||Short Sale with $0 Balance||Short Sale with Deficiency Balance||Foreclosure|
You won’t find the term “short sale” on a credit report. Rather, the account will show that you settled your home loan for less than you owed.
Like a foreclosure, a short sale settlement can stay on your credit for up to seven years. The credit reporting clock begins on the original delinquency date—the first late payment that leads to the short sale. However, if you were never late on your mortgage prior to the short sale, the account can stay on your report for up to seven years from the settlement date.
Purchasing a new home after a foreclosure can be difficult. Even if you rebuild your credit score so that it’s high enough to satisfy a lender’s qualification criteria, you may still have problems getting a new mortgage.
Mortgage companies are concerned with the risk of loaning money and not getting paid back as promised. So, they may be slow to approve a new mortgage application if a previous foreclosure or mortgage settlement appears on your credit report.
Once you allow enough time to pass, however, you might be able to find a lender that’s willing to work with you, even with a foreclosure on your credit. Each lender sets its own approval criteria, but here are some general guidelines.
A credit bureau should automatically remove a foreclosure from your credit report on its own once the seven-year credit reporting clock expires. But there are a few circumstances under which you might be able to remove a foreclosure from your report earlier than expected.
In the situations above, you could dispute the foreclosure with the credit reporting agencies, either on your own or with the help of a credit repair professional. If the lender doesn’t verify the foreclosure as accurate, the credit reporting agencies should delete it from your report.
An accurate foreclosure can remain on your credit report for up to 7 years. But if the mortgage account on your report contains errors, you may be able to remove it early. The steps below may help.
It’s important to check your credit reports from all three credit bureaus frequently, especially after a major change like a foreclosure. The FCRA gives you the right to access to a free copy of each report once per week via AnnualCreditReport.com.
Once you have your reports, locate the mortgage account with the foreclosure on each of them. Examine the account closely on each report as you look for errors or questionable information. Keep an eye out for problems such as:
Make a note of any problems you identify. You’ll need this information for the next step.
The FCRA gives you the right to dispute information on your credit report when you disagree with it or question its accuracy. This right to dispute extends to any item on your credit report, including foreclosures.
You can submit a dispute with each credit reporting agency on your own. Equifax, TransUnion, and Experian accept credit disputes by mail, phone, or online. When you dispute an item on your credit report, the credit bureaus typically have 30 days to investigate and respond.
You can also hire a company to work on your behalf. A reputable credit repair professional can help you review your three credit reports for accuracy. It can also help you file disputes with the credit bureaus.
Credit Saint has more than 15 years of experience helping consumers understand and work to improve their credit. The New Jersey-based credit repair company has an A rating with the Better Business Bureau and offers a 90-day money back warranty to every customer. You can call to schedule a free credit consultation with a credit counselor today.
Ashley is currently the Chief Compliance Officer for Credit Saint, previously the Chief Operating Officer. Ashley got into the Financial world by working as a Logistics Coordinator at Ernst & Young. Coming from a previous career in education, she is eager to teach the world everything she knows and learn everything that she doesn’t! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, a Certified Credit Score Consultant with the Credit Consultants Association of America, UDAAP certified, and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.