Effects Of Mortgage Debt On Credit Scores

: Chris Lee Law Firm

  Filed under: Foreclosure

Many people dealing with mortgage debt are desperately trying to avoid foreclosure. Knowing that losing a home in foreclosure can result in credit problems down the road, the consequences can be worse than some expect.

Credit Truths

The reason that a foreclosure can damage your credit is simple; you borrowed a large sum of money and defaulted on your payment. Unlike missing a payment on a credit card, a mortgage loan is worth far more money and is tied directly to the possession of the house. Further, missing a mortgage payment is often a sign of greater financial problems. When you allow the bank to foreclose on a home and take possession, you are stuck with the label that you are a risky borrower. Future creditors are hesitant to lend to someone who was unable to maintain a mortgage in the past, leading you to a longer road to credit recovery.

Luckily, there are solutions to help you avoid the, sometimes steep, consequences of a foreclosure. Short sales will result in you losing the home, but your chances of lessening the blow to your credit are much higher. For instance, many lenders will report a short sale as having the debt be “satisfied” or “paid” upon the sale of the home. Your credit is not nearly as impacted by a satisfied debt as one with a status of “defaulted”. However, there are occasions in which a lender will mark the status of your account as “settled” in a short sale. This can be more damaging to your credit than a “satisfied” status, but is still far better than the effects of a foreclosure. If you are pursuing a short sale, work towards negotiating a “satisfied” status on your account upon completion.


Are you a candidate for bankruptcy?
Would you like to find out if bankruptcy is the right option for you? Try our Free Online Bankruptcy Evaluation. 4 easy steps to see if bankruptcy could be the right option for you!
  • Step 1
  • Step 2
  • Step 3
  • Step 4
Please Select Each Box That Applies To You
Creditor Harassment
Loss of Income
Foreclosure
Disability or Illness
Current Expenses
Auto Loans
Credit Cards
Medical Bills
Payday Loans
Do you have any additional information you would like to share?
Contact Information