Education Center

How to remove a foreclosure from my credit profile?

Unlike removing late payments or collections, removing a foreclosure from your credit report will be difficult. But it might be possible to remove a foreclosure from your credit report by following the three steps I list below. To follow these steps, you will need an up-to-date copy of your credit report from all three credit reporting agencies. 

Ways to remove foreclosure from your credit report

Like I said earlier: removing a foreclosure from your consumer credit file may be possible. These strategies could make it happen:

Step 1: look for inaccurate information in the foreclosure entry

By now, you should have a credit report from all three credit reporting agencies:

Transunion
Experian
Equifax
Look for the foreclosure entry on your reports and look closely for inaccuracies.

Here are some things to keep in mind:

Balance
Opening date
Account number
Lender’s Name
Anything else that could be a mistake.
If you find any inaccurate information, write it down so you can dispute the entry.

Next, you’ll want to dispute the entry with all three credit reporting agencies. They will have 30 days to verify the accuracy of the entry and correct or remove it from their credit report.

The Fair Credit Reporting Act (FCRA) requires bureaus to report only accurate information. Be sure to quote this law in your dispute letter.

Step 2: Require the Lender to Eliminate Foreclosure

If disputing the entry with the credit bureaus does not eliminate the foreclosure, your next step should be to write to the lender. You should state that the foreclosure entry on your credit report is inaccurate and demand its removal. Again, the FCRA requires creditors to provide accurate information about you. If you cannot correct the inaccuracies, the lender must remove the negative entry from your credit report. You can get a sample of an advanced dispute letter here. Give the lender 30 days to clear the foreclosure before taking further action.

Step 3: seek help from a credit repair professional

When you don’t have time to download copies of your credit report and write letters to the credit bureaus or your former lenders, you may prefer to seek professional help.

What is a foreclosure?

A foreclosure is one of the worst possible outcomes when borrowing money to buy real estate. A mortgage uses your home as collateral for the home loan. If you cannot make the monthly mortgage payments, the lender will eventually foreclose. This means that the lender claims ownership of the property and sells it to repay the loan. You should know that homeowners will not face foreclosure due to some late payments or one or two late payments. Lenders lose money when they foreclose, so it really is a last resort for both them and the borrower.   But if you’ve gone more than 120 days without making a payment, foreclosure is a real possibility.

How does foreclosure affect my credit score?

To say that foreclosure has a negative impact on your credit history is a huge understatement.  If you have good credit, a foreclosure could take 100 points or more off your FICO score. If you have excellent credit, a foreclosure could lower your FICO by up to 150 points.  Of course, if you already have shaky credit, the impact won’t be that great. But the negative impact would still be long-lasting, preventing your score from improving as you build a new history of payments on time.  The presence of a foreclosure on your credit report could prevent you from obtaining another home loan even if your credit score has recovered enough to qualify for the loan.  And foreclosure is not the only problem. Since, on average, it takes a bank or loan servicer 120 days to foreclose, you will also have many late payments, late payments, and other negative marks associated with the home loan.  All of this negative information will have a cumulative negative impact on your credit score.  So if the lender doesn’t recoup your losses by selling your home, you will still have an overdue balance to hold onto you.

How long does a foreclosure stay on your credit?

Like most negative marks, a foreclosure stays on your credit history for seven years.  Over time, the negative impact should diminish, but getting new credit, such as a credit card or car loan, would be difficult for at least several years.  Borrowers who can get bad credit loan approvals will pay higher interest rates on the new credit. High interest rates make loan costs punitive and limit your purchasing power. It may not be possible to get another home loan for at least seven years, even if your credit score begins to recover.  Eliminating foreclosure, if possible, would breathe new life into your credit file.

How to avoid foreclosure before it hurts my credit?

If your mortgage servicer has already started a foreclosure process, they may not be able to stop the process. But if you’re struggling with bad debt but the bank hasn’t foreclosed yet, there’s still time to avoid foreclosure.  Always remember that your lender earns money when you make regular interest payments over the life of the loan. Foreclosure is the last resort for the lender. Therefore, you should contact your lender or loan servicer immediately. Most servicers now have ways that they can help you avoid foreclosure.   Some borrowers instinctively ignore bad news from their lenders. They don’t answer the phone and throw away the mortgage statements. This is the worst idea.  Even when it is painful or embarrassing, you should contact your lender. Answer the phone. Open the mail. Give them a call and tell them you’re having trouble making payments and need help before it’s too late.

If you really can’t make the payments and want to get out of the mortgage, try selling the house and pay off the loan balance yourself. Your future personal finances will thank you.

Can a short sale help you?

Even if you don’t have enough equity to pay off the loan, a short sale can help. With a short sale, you could satisfy the lien from the proceeds of the sale even if you don’t pay the entire balance.  This solution has its own dangers. Your credit score will continue to have a big impact. But at least you’d be out of a loan entirely and you could start a clean credit rebuilding process without a foreclosure on your credit report.

What about a deed agreement in place?

With a deed agreement in place, you would basically hand over the deed to your home and let the bank sell it. In return, your lender would not initiate foreclosure proceedings.  A replacement deed is a lot like a short sale, except you don’t have to sell the house yourself.  However, a lender may require you to put the home on the market for a time before agreeing to a deed-in-lieu agreement.  This probably won’t work if you have a second lien, such as a home equity loan or a home equity line of credit with a balance due.  And, once again, this solution won’t help your credit score much. From the point of view of the credit reporting agencies, a substitute deed is comparable to a foreclosure.  But at least he would take control of the process and create his own closing without foreclosure weighing on his credit file for the next seven years.

Can I buy a home with a foreclosure on my credit?

Why are short sales and deed-in-place agreements attractive even if they don’t do much for your credit score?

Because a foreclosure can hold you even if your credit score recovers enough to meet a lender’s credit score requirements.  For example, if your FICO score goes back up to 620 in a few years despite foreclosure, you can expect to get approved for many types of home loans. But then when the credit check shows your foreclosure, you could still be turned down for the new mortgage.  Fannie Mae and Freddie Mac, for example, require a seven-year waiting period before backing up a conventional loan, even if your credit score has recovered.

You could possibly get a loan backed by the FHA or USDA within three years of a foreclosure. If you are a veteran, you may still be able to use the VA loan program to buy a home, even if you have a foreclosure on your credit history that is only one or two years old.

How to rebuild your credit after foreclosure

Repairing your credit after foreclosure takes time and patience. But careful use of credit and strategic spending and borrowing can help speed up the process. These tips should help:

Use credit cards wisely

Credit cards can be your best friend or worst enemy as you work to build and maintain good credit.  Some creditors may close your account if they discover your foreclosure, but others will not.  If you already have credit cards, keeping them open and making payments consistently will help lengthen your credit history and improve your payment history and credit utilization rate.  All of these factors work together to help your credit heal from the trauma of foreclosure.

Consider a secured card

If you’ve dealt with a low credit score before, you know that getting a new credit card approved will be a challenge.  Enter Secured Credit Cards, which are tailor-made to help people with low credit scores improve their eligibility status, and improve their scores by using these cards responsibly. Secured cards are simple. Make a deposit when you open the account. That deposit determines your credit limit, giving you room to rebuild your credit without risk to the card issuer.  It is beneficial to everyone involved, if you make payments responsibly.  Be sure to shop around before choosing a card to ensure you get the lowest fees and reasonable terms.

Take your time

Your credit score will not recover overnight. So keep an eye on your credit score and don’t apply for a loan unless you know you qualify.  Applying for new loans or lines of credit can lower your credit score. New credit applications result in a rigorous credit check. Several harsh credit checks in a year will hurt your credit score. So make sure you have a chance to qualify before applying.

Work on your payment history

Instead of rushing and applying for all the types of credit you may qualify for, make responsible payments from the sources of credit you have now and allow your score to improve based on those actions.  Remember, payment history comprises 35 percent of your credit score. The better your payment history, the higher your score.