When considering bankruptcy, foreclosure or short sale, many people are concerned about the potential impact on their credit scores. What they often do not realize is that simply by making late payments or skipping payments, they have already caused damage to their credit score.
At Juras Law Firm in Phoenix, Arizona, an experienced bankruptcy attorney is ready to evaluate your financial situation and determine how to achieve debt reduction with the least impact on your credit score. Call (480) 425-2009 or contact us via email to schedule a CONSULTATION. We offer reasonable fees and payment plans for your convenience.
Bankruptcy always affects a person’s credit score, but how much it affects it depends on the individual situation. For example, those with a large number of unsecured debts may only see a small dip in credit score, as the debts are discharged. While these debts still remain on the credit report, the outstanding balance will show as ‘0’.
Lenders can see a bankruptcy filing on credit reports for up to 10 years. With the notification on the credit report and the decreased score, lenders often view these individuals as high risk and be hesitant to loan money and approve mortgages.
Fortunately, the effects are not permanent. It is possible to begin rebuilding a credit score shortly after bankruptcy closes. If a person pays bills on time and uses only a small portion of available credit, the three-digit score will begin to increase as time passes. In fact, our clients have been reporting to us that they credit score improves within one year after bankruptcy because their income-debt ration approves.
Like bankruptcy, a foreclosure remains on a person’s credit report under the Public Information section for up to 10 years and also takes a serious toll on a credit score. Just having late payments can slowly decrease the credit score. Once a person’s house is foreclosed, the credit score can drop 100 or more points, depending on the number of late payments and other financial issues. Even if debtors try to seek another loan to help pay the mortgage, the lenders may be hesitant to agree due to past history of overdue debt.
Lenders take a serious stance against foreclosure. For example, some lenders will not lend again for five years following a home foreclosure. Others may approve a mortgage or loan, but at a much higher interest rate than normal ¾ sometimes as high as 20%. For these reasons, it best to try and prevent home foreclosure.
Unlike bankruptcy and foreclosure, short sale is not reported on a credit history. Because there is no specific reporting item, short sales are reflected in the loan being reported as “paid in full” or as “settled.” However, a short sale can still significantly affect your credit score, sometimes by as much as 160 points if a homeowner is at least 59 days late on payments. The impact on a credit score can be lessened if you do not miss any payments and the loan is reported as “paid in full.”
Like foreclosure, home lenders are hesitant to lend immediately following a short sale with some choosing not to lend again for two years. If a person was up-to-date with payments, however, lenders may view them as less of a risk and agree to a loan or mortgage, but with a higher interest rate. The ultimate effects on obtaining a loan depends on the individual financial circumstances, such as if the debtor filed bankruptcy with the short sale, if he or she have other past due debts, and when the debtor put their house up for short sale.
Often, life events happen that are beyond a person’s control. However, there are ways to begin rebuilding credit after bankruptcy discharge or after a short sale or foreclosure. At the Juras Law Firm, Phoenix bankruptcy attorney Irena Juras works with individuals, couples, families and businesses to provide bankruptcy assistance. She regularly provides counsel and guidance through debt reduction and rebuilding credit. Call 480-425-2009 or contact Juras Law Firm via email to schedule a CONSULTATION.
Legal Notice: We help people file for relief under the U.S. Bankruptcy Code