The Effects of Foreclosure

After hearing our story people often want to know the effect foreclosure has had on us including our ability to get credit, make purchases, etc. Our house was foreclosed 3 months ago so I doubt we’ve seen the total fallout from foreclosure, but I’ll share what has happened so far.

Credit Scores – My scores dropped 200 points. Within 2-3 months of missing our first mortgage payment my FICO scores dropped from 800 to 600. My scores started to rebound after the bank foreclosed on the house and reported it to the credit bureaus. My average score now is 630.

Credit Cards – Before the foreclosure I had 3 credit cards with extremely high limits but zero balances. (We were already in the habit of using our cards for specific activities like gas and paying them off monthly) After the foreclosure one card issuer opted not to renew my card when it expired. I never used this card so it was not a problem. The other cards lowered my limit. One I never used so I took the opportunity to close out the card. The other one was my primary card that I used to earn airline miles. The limit was lowered from $55,000 (who needs that amount?!?!) to $2000. Ouch! That bruised my ego but it hasn’t had any impact on my ability to make purchases on it since I pay it off every month.

It’s also worth noting that the interest rates on our cards went up about 4 points to an average of 18%. This coincided with the Credit Card Act so I believe our rates would have gone up regardless of the foreclosure. Get Rich Slowly has an excellent article on what the new credit card laws mean to you.

House Rental – We were very concerned about how we would be perceived by prospective landlords with the foreclosure. As it turned out we were not alone and we didn’t have any problems renting a house. Every property manager we met with told us that 9 out of 10 families looking at rental homes in our area were in the same situation. I’d like to note that we took great pains to present ourselves well.

1. We were always on time if not early to appointments
2. We explained our situation and what steps we were taking to recover financially
3. We had copies of our credit report to show that aside from the foreclosure we had perfect credit histories

Now the biggest unknown is how long it will be before we can obtain a mortgage at reasonable rates. I’ve read it can take anywhere from 2-5 years. In the meantime, we’ll continue to do the things that will improve our credit and our finances such as:

• Pay down debt
• Continue to use credit cards and payoff the balances each month
• Save and re-build our nest egg

You can read more about our goals here.

We’re optimistic that if we stay positive and work towards our goals, the foreclosure will become a distant memory of an event that led us to lead a simpler, happier, more abundant life.

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