debt

Foreclosure a stain on your credit report

Steve Bucciq_v2.gifDear Debt Adviser,
In 2005, due to many circumstances, my home went into foreclosure. The questions I have are, after the seven years does it come off my credit report or do I have to ask for it to be taken off from the three bureaus? Also, will I be able to get a house at any point after that time?
-- Tina

a_v2.gifDear Tina,
I hate foreclosure! Besides the money lost, the damage to your hopes and dreams, confidence, relationships and more can be considerable. I'm sorry you had to go through the emotionally draining and financially damaging experience. I also hope that you got something positive from the event and at least exited the process wiser and stronger if a bit battered.

Your question about your credit report is a good one. The Fair Credit Reporting Act requires that negative information must be removed from your credit report after seven years. There are some exceptions to this rule, including student loans, IRS debts and Chapter 7 bankruptcies, but mortgages are not one of them. Anything that is left on past the seven-year term is called "out-of-date information." However, with billions of pieces of information exchanged daily with the three major credit bureaus, it is a good idea to check yours once a year. You can receive a free copy of your credit report each year from each of the bureaus.

Because a foreclosure is what is known in the industry as a "big bad," a name I find very descriptive, I suggest that you double-check to be sure it leaves your credit report on schedule. So, in 2012, I'd check all three of your credit reports in the month after your foreclosure was final in 2005 to be sure any items associated with the mortgage foreclosure have been removed from your credit reports. In normal situations, I recommend that you check one of your credit reports every four months so that you can clean up any errors or out-of-date items or even find and stop an identity theft quickly. If you find any errors, dispute them with the bureau that is reporting it. Instructions on how to file a dispute come with every report. That alone should tell you something! You can file disputes online at the bureau's Web site.

As to your home purchase question, the answer is, it depends. Historically, underwriters like to see positive information accumulating on your credit reports for at least two years after the "big bad" event. Positive information includes paying all your current credit accounts on time and as agreed as well as paying any outstanding negative accounts. If you have any unpaid charge-off accounts, while paying them off will generally not raise your credit score, it may make you a more attractive loan candidate as potential mortgage underwriters are generally much less willing to loan you money if you have outstanding unpaid accounts.

If you do not have any active installment accounts, you might consider opening one. Lenders want to be shown you can manage a monthly payment well. You could take out a passbook savings loan with your bank or credit union. These loans are secured by money you have in your savings account. Before you sign on the dotted line, ask whether your bank reports the loan to the credit bureaus. Not all of them do, and you want it to be reported so it will help build your credit. For more info on how to boost your credit score, I suggest that you go to myFICO.com. This site is operated by the FICO credit score people and has great advice.

The key for you and everyone else purchasing a home after a foreclosure is to rebuild your credit by establishing a positive credit history for at least two years and have a convincing story that explains what happened last time and why it won't happen again.

The bottom line is that you should be able to get a home again after the seven years are up if you rebuild your credit and your finances.

Good luck!

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

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