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Disputing

3 Ways to Remove a Foreclosure From Your Credit Report



Unlike removing late payments or collections, removing a foreclosure from your credit report will be difficult.

But it could be possible to remove a foreclosure from your credit report when you follow the three steps I list below.

In order to follow these steps, you’ll need a current copy of your credit report from all three credit reporting agencies.

You can get your free credit reports through www.annualcreditreport.com.

Ways to Remove Foreclosure From Your Credit Report

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

Step 1: Look For Inaccurate Information On The Foreclosure Entry

foreclosureBy now you should have a credit report from all three of the credit bureaus:

  1. Transunion
  2. Experian
  3. Equifax

Find the foreclosure entry on your reports and look closely for inaccuracies.

Here are a few things you should be looking at:

  • Balance
  • Date opened
  • Account number
  • Lender name
  • Anything else that might be an error.

If you find any inaccurate information, make a note of it so you can dispute the entry.

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

The Fair Credit Reporting Act (FCRA) requires the bureaus to report only accurate information. Make sure you cite this law in your dispute letter.

Step 2: Demand That The Lender Remove The Foreclosure

If disputing the entry with the credit bureaus does not remove the foreclosure, your next step should be to write the lender.

You should state the foreclosure entry on your credit report is inaccurate and demand its removal.

Again, the FCRA requires creditors to report accurate information about you. If it can’t fix the inaccuracies, the lender should remove the negative entry from your credit report.

You can get a sample advanced dispute letter here. Give the lender 30 days to remove the foreclosure before taking further action.

Get a Free Copy of Your Credit Report

Step 3: Seek The Help of 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 to your old lenders, you may prefer hiring professional help.

Lexington Law Credit Repair is one of the nation’s leading credit repair companies.

This is one of the few companies with attorneys and paralegals on staff so it’s well qualified to help remove a foreclosure from your credit history.

Ask Lex Law for Help

What, Exactly, Is a Foreclosure?

A foreclosure is one of the worst possible outcomes when you borrow money to buy real estate.

A mortgage uses your home as collateral on the home loan. If you can’t make the monthly mortgage payments, the lender will eventually foreclose.

This means the lender claims ownership of the property and sells it to pay down the loan.

You should know homeowners won’t face foreclosure because of a few late payments or one or two missed payments. Lenders lose money when they foreclose so it really is a last resort for them as well as for 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 foreclosure has a negative impact on your credit history is a huge understatement.

If you have a good credit history, a foreclosure could take 100 points or more off your FICO score. If you have excellent credit, a foreclosure could knock up to 150 points off your FICO.

Of course, if you already have shaky credit, the hit won’t be as large. But the negative impact would still be long-lasting, preventing your score from improving as you build a new history of on-time payments.

The presence of a foreclosure on your credit report could prevent you from getting another home loan even if your credit score has recovered enough to qualify for the loan.

And, the foreclosure isn’t the only problem. Since it takes 120 days, on average, for a bank or loan servicer to foreclose, you’ll also have a lot of late payments, missed payments, and other negative marks associated with the home loan.

All this negative information will have a cumulative negative impact on your credit score.

Then, if the lender doesn’t recoup its losses by selling your home, you’ll still have a past-due balance holding you back.

How Long Does a Foreclosure Stay on Your Credit?

Like most negative marks, a foreclosure stays in your credit history for seven years.

Over time, the negative impact should lessen, but getting new credit such as a credit card or a car loan would be difficult for several years at least.

Borrowers who can get loan approvals with bad credit will pay higher interest rates on the new credit. High-interest rates make borrowing costs punitive and limit your buying power.

Getting another home loan may not be possible for at least seven years even if your credit score starts to bounce back.

Getting the foreclosure removed, if possible, would breathe new life into your credit file.

How to Avoid a Foreclosure Before it Affects My Credit

If your mortgage loan servicer has already started foreclosure proceedings, you may not be able to stop the process.

But if you’re struggling with delinquencies but the bank hasn’t foreclosed yet, there’s still time to prevent the foreclosure.

Always remember that your lender makes money when you make regular payments with interest for the life of the loan. Foreclosing is a last resort for the lender.

So you should get in touch with your lender or loan servicer immediately. Most servicers now have ways they can help you avoid foreclosure.

Some borrowers instinctively ignore bad news from their lenders. They don’t answer the phone and throw away mortgage statements. This is the worst idea.

Even when it’s painful or embarrassing, you need to get in touch with your lender. Answer the phone. Open the mail. Call them and say you’re having trouble making the payments and need some help before it’s too late.

If you truly can’t afford to make the payments and want out of the home loan, try to sell the home and pay off the loan balance yourself. Your future personal finances will thank you.

Will a Short Sale Help You?

Even if you don’t have enough equity to pay off the loan, a short sale may help. With a short sale, you could satisfy the lien with the sale’s proceeds even if it doesn’t pay off the entire balance.

This solution has perils of its own. Your credit score will still take a big hit. But at least you’d be out of the loan completely and could start a clean credit rebuilding process without a foreclosure sitting on your credit report.

What About a Deed-in-Lieu Agreement?

With a deed-in-lieu agreement, you’d basically hand over the deed to your home and let the bank sell it. In exchange, your lender would not initiate foreclosure proceedings.

A deed-in-lieu is a lot like a short sale except you’re not having to sell the home yourself.

However, a lender may require you to put the house on the market for a while before accepting a deed-in-lieu arrangement.

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 very much. From the point of view of the credit reporting agencies, a deed-in-lieu is comparable to a foreclosure.

But at least you’d be taking control over the process and creating your own closure without a foreclosure weighing down your 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-lieu agreements attractive even though they don’t help your credit score very much?

Because a foreclosure can hold you back even if your credit score recovers enough so that it meets a lender’s credit scoring requirements.

For example, if your FICO score is back up to 620 in a few years despite the foreclosure, you may expect to get approved for many kinds 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 they’ll back a conventional loan even if your credit score has recovered.

You could possibly get an FHA or USDA-backed loan within three years of a foreclosure.

If you’re a veteran, you may still be able to use the VA lending program to buy a home even if you have a foreclosure in your credit history that’s only one or two years old.

How to Rebuild Your Credit After Foreclosure

Repairing your credit after a foreclosure takes time and patience. But some careful credit utilization 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 your worst enemy as you work to build and maintain good credit.

Some creditors may close your account if they discover your foreclosure, but others won’t.

If you have credit cards already, keeping them open and making payments consistently will help lengthen your credit history and improve your payment history and credit utilization ratio.

All of these factors work together to help your credit history recover from the trauma of foreclosure.

Consider a Secured Card

If you’ve dealt with a low credit score before, you know getting approved for a new credit card will be challenging.

Enter secured credit cards, which are tailor-made to help people with low credit scores boost their eligibility status — and boost their scores by using these cards responsibly.

Secured cards are simple. You make a deposit when you open the account. That deposit determines your credit limit, allowing you space to rebuild your credit at zero risks to the card issuer.

It’s a win-win for all involved — if you make payments responsibly.

Be sure to shop around before picking a card to ensure you get the lowest rates and reasonable terms.

Take Your Time

Your credit score won’t rebound overnight. So keep an eye on your credit score and don’t apply for borrowing unless you know you’ll qualify.

Applying for new loans or lines of credit can lower your credit score. New credit applications prompt a hard credit check. Several hard credit checks in a year will hurt your credit score.

So make sure you actually have a chance at meeting the qualifications before applying.

Work on Your Payment History

Rather than jumping the gun and applying for every type of credit you may qualify for, make responsible payments on 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 is, the higher your score will climb.

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