Many consumers lost their homes to foreclosure following the 2007-2009 recession, and while things have since turned around economically, this black mark may still linger on their credit.
Foreclosures stay on your credit report for seven years from the filing date - not when the house is sold or the end of the foreclosure process. When it first appears on your credit report, you should expect to see up to a 300 point decrease in your credit score, depending on what other negative information may already be on it.
However, the 300 point decrease is not permanent. According to a FICO study, consumers that had a 680 credit score before the foreclosure could get back to that score in approximately three years time.
Is it as bad as having a bankruptcy on your credit report? According to myFICO.com, while both foreclosure and bankruptcy have a negative impact on your credit, the severity differs. For example, a foreclosure can be isolated to a single account, whereas in the case of a bankruptcy, multiple accounts that were "not paid as agreed" could be involved, which may be a larger sign of financial irresponsibility.
Buying a Car with a Foreclosure on Your Credit Report
If you have improved your credit in other areas (paid off your previous debt or maintained a steady on-time payment history with your accounts), a foreclosure may have only a minor impact on whether or not an auto lender decides to approve you. Specifically, lenders that work in subprime finance look for ways around damaged credit, especially if the black mark(s) in question are isolated incidents, such as a foreclosure.
Here is what you should know about how these lenders typically deal with a foreclosure on your credit report.
- It doesn't matter if the foreclosure is completed for them to work with you.
- If you are still living in the foreclosed property, the lender will factor the mortgage payment into your debt-to-income (DTI) ratio even if you are not paying it.
- If you are no longer residing in the foreclosed property, the lender will use your current rent or mortgage payment when calculating your DTI.
Also, when you are looking for another vehicle, try to stay grounded in your expectations. You may be dealing with a higher interest rate than normal, so look for a vehicle that is affordable, reliable and will meet your current needs. Also, it would be helpful for you to have a down payment ready as well.
Getting Back On the Road Is Easy
Auto Credit Express has a nationwide network of dealers that work with subprime finance lenders. Their F&I departments know how to work with car buyers with blemishes on their credit, including foreclosures, and will do everything possible to get you back on the road. Complete the fast, secure and obligation-free online application and we will connect you with a dealer in your local area that can help. You don't have to wait, start today.