How Long Does a Foreclosure Stay on Your Credit?
Reader question: "We are being foreclosed on right now. It's a long story that involves an 'explosive' ARM loan and a temporary loss of income. We hope to be able to buy another home some day. I've been told that a foreclosure can do a lot of damage to a credit score. Is this true? And if so, how long does the foreclosure stay on my credit report to the point that it does damage?"
According to the Fair Credit Reporting Act (FCRA), a home foreclosure can stay on your credit report for up to seven years. The "clock" starts when the bank files the notice with the court. Soon after this, the event will be reported to all three of the credit-reporting bureaus -- TransUnion, Equifax and Experian. This is how it ends up on your reports.
Most negative entries can stay on your credit reports for seven years. The only event that can stay longer than that is a bankruptcy filing, which can remain for up to 10 years.
Home foreclosure is a legal process. Whether or not it actually goes before a judge will depend on the laws of your state. Regardless of judicial review, the lender must file a notice of default and foreclosure with the county court. At this point, it becomes public information (like most legal proceedings). So it will show up on the "Public Information" section of your credit reports, where it can remain for up to seven years.
After the seven-year period, the foreclosure filing should be removed from your reports. The expiration usually happens automatically, without any effort on your part. But it's wise to check your credit reports at that time, just to make sure the derogatory entry gets removed. If it doesn't get removed, you can dispute the item with the reporting company that is responsible for the erroneous report.
A foreclosure can do a lot of damage to your FICO credit score (see next section). But will have less of an effect over time. If you pay all of your debts on time going forward, you could see a slow but steady improvement in your score -- even while the foreclosure stays on your report. This is the typical pattern for a derogatory entry. It does the most damage as soon as it hits your reports, and then it fades with time and "good behavior."
There are some companies out there that claim they can have certain items removed from your credit reports. They often claim to be "industry insiders" who have inroads with the credit-reporting agencies. Don't buy it. These are scammers who want you to pay some kind of upfront fee. Nobody can have a legitimate entry removed from your credit reports until the item exceeds its legal time limit.
The only two items that can be removed are (A) erroneous entries and (B) entries that are beyond their allowable timeframe. And you can handle both of those things for yourself.
How a Foreclosure Affects Your FICO Score
That answers the first part of your question: How long does a foreclosure stay on my credit report? I'll assume you have the usual follow-up question as well. Most people want to know how much their FICO credit scores will drop after being foreclosed on.
There is no exact answer for this, because there are too many variables at work. You could see a drop of 250 points or more. That's a considerable amount of damage, considering the FICO scoring range is only 550 points "wide" (it goes from 300 to 850).
You might see more or less damage, depending on your credit history and your current score.
- If you have other negative entries on your reports, your FICO score could drop more than 250 points after the foreclosure process.
- If the foreclosure is an isolated event, and you have otherwise excellent credit, it might drop less than 200 points.
I found an interesting bit of information about this topic on the MyFICO website. This is the company that invented the FICO credit-scoring model, so they are clearly the authority on such matters. Their website says that your score could start to rebound in as "little" as two years after the foreclosure -- as long as you stay current on all of your other debts. That's an important caveat at the end. How long it takes to improve your credit will largely depend on the actions you take after being foreclosed on.
See also: How to get a better credit score ASAP
There are a lot of variables to consider. Of course, you'll find out soon enough. You said the bank is currently foreclosing on your home. So the negative entry will soon appear on your credit reports, if it hasn't already. After it gets reported, the foreclosure can stay on there for up to seven years. But remember -- it's possible to improve your credit score after the initial hit. So don't give up hope.