House keys and foreclosure noticeThe effects of foreclosure are devastating both emotionally and  financially. Aside from losing your home, a foreclosure can result in up to a 200 or 300 point-drop in your credit score. Aside from foreclosure, late mortgage payments, short sales and deeds in lieu can also bring down your credit rating. However, the good thing is that these effects do not have to be permanent. With constant effort to pay your debts and improve your finances, you can increase your credit rating. Below are some of the effects of foreclosure, short sales and deeds in lieu and how you can bounce back from them.

Foreclosure. Your credit rating takes a dive when you lose your home to foreclosure. This drop inevitably affects your ability to purchase cars, other homes, or obtain loans and insurance. Lenders will be looking at your credit score and will be hesitant to approve your loan or application due to bad credit. If you’re unemployed, your credit score may also affect your search for employment because there are employers who refer to  your credit history as a criteria for professionalism and personal responsibility. If you have a low credit rating, your employer might think that you are not credible enough to be part of the company. Your future might seem hopeless, but the effects of foreclosure are not forever. If you improve your financial situation by settling debts and paying off loans, you can slowly improve your credit rating.

Short Sales and Deed In Lieu. Short sales happen when you sell the house for a price less than the unpaid mortgage. Of course you need to have the approval of the bank before selling, and in this case, the bank losses money – hence the term “short” sale. Deed In Lieu or mortgage release, on the other hand, happens when a short sale is not applicable. Deed in lieu is a transaction where the borrower voluntarily transfers the title to the house to the lender, in exchange for a release from the mortgage contract. Short sales and deeds in lieu affect your credit score the same way foreclosure does. There are some lenders who view short sales and deeds in lieu as the same as foreclosure, but there are others who do not. So when you do business with other lenders in the future, ask where they stand in the issue.

Late Payments. Late payments also affect your credit score, though not as much as foreclosure. Just a 30-day late payment can result in a drop in your credit score, so if you think you’re going to miss payments, talk to your lender immediately and work out an alternative plan.