For millions of people across the nation, the possibility of foreclosure has become a harsh reality, and many are dealing with the effects foreclosure has on their credit score rating. If you are one of the people affected by the recent crisis, you may be wondering “How Will a Foreclosure Affect My Credit Score?”

How Will a Foreclosure Affect Your Credit Score?

If you are late with your mortgage payments, this will surely have an effect on your credit score rating.  This is not hard to figure out. However, you may be wondering how big an impact it will have on your score.

The exact answer to this question may not easy to find. That is why you may be interested to learn what Fair Isaac, which developed FICO scores, have to say about this.

Foreclosure Effect on Credit Score

The following are the average hit your credit score will take:

See the chart on the right to see how being late with payments affected two hypothetical borrowers.

How foreclosure impacts your credit score

30 days late: 40 – 110 points

90 days late: 70 – 135 points

Foreclosure, short sale or deed-in-lieu: 85 – 160

Bankruptcy: 130 – 240

Effect of foreclosure on credit score: To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a score of 680 and the other with a very good score of 780.

The consumer with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records. In these scenarios the total decline will run about 85 points for the 680 score borrower to as much as 160 for the 780 score. Via money.cnn.

Other sources estimate the damage even higher. Some say that foreclosure will cause a credit score to drop sharply, typically by 200 to 300 points. That would drop a score of 700 — considered a ‘good credit score” — to as low as 400 — considered pretty bad. The minimum FICO score is 340.

Unfortunately, for a lot of people facing foreclosure, the mortgage isn’t the only payment that’s late. If you are also late on other payments, such as car loan payments, student loan or are late on credit card payments, your credit score rating can drop even more within a very short period of time.

However, despite the problems a poor credit score can cause, if you are faced with totally unaffordable mortgage, it’s better to deal with that right away and cut your losses quickly; instead of prolonging the problem, making it even worse.

The good news is that even though a foreclosure can remain active on your credit report for seven years and make it difficult in certain lending scenarios, your credit score is not ruined for life. If you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years. The important thing to remember is that a foreclosure is a single negative item. If you manage to keep other payments up to date, it will be much less damaging to your credit score than if you had a foreclosure in addition to defaulting on other credit obligation.

“A foreclosure is not the end of the world. Most people will see their credit scores back in the high-600 range within two to three years,” says Patrick Ritchie, author of “The Credit Road Map.” “I had a mortgage client who went through a foreclosure and chapter 7 bankruptcy and three years later had a 690 middle FICO score.” via realestate.aol.

When you reach the seven-year mark, check your credit report to make sure the credit bureaus are still not reporting the foreclosure. You may need to send them a written notice in order to have the foreclosure removed after it has expired.

Read more about credit score ranges on this blog.