A foreclosure stays on your credit report for seven years, but according to a new study, the real damage is much shorter-lived than that.

Sourced from: www.forbes.com

Foreclosure is a process in which a lender or banking institution attempts to recover the balance of a home loan from a borrower who has stopped making payments by forcing the sale of the asset (in most cases the home, apartment or real estate) used as the collateral for the loan.

In recent years foreclosures have been decreasing in the United States and they are currently at their lowest rate since January 1999.  This is based on property and real estate research data from CoreLogic.  According to their chief economist, Frank Nothaft, this reduction in foreclosures is due to a “…strong economy and eight-plus years of home price growth…”

Unfortunately, foreclosures are inevitable for many consumers, often no fault of their own.  A loss of income through a lay-off, change in personal health forcing them out of work or unforeseen expenses, like medical emergencies, run consumers into financial trouble to the point where they stop making payments to their lender.  Consumers should do everything in their power to avoid foreclosure and the US.gov site has some good information here.

At the end of the day, consumers can survive a foreclosure. A foreclosure stays on your credit report for seven years, but according to a new study by LendingTree, the real damage is much shorter-lived than that.  The bulk of foreclosure damage occurs within the first two years where a consumer can see their credit score decline by 150 to 300 points.  That really hurts and has a significant cost in terms of any interest rates that you pay for credit cards or lending products.  The good news is by the third year after a foreclosure, most borrowers have rebounded to a 640 credit score or higher.  That is considered ‘fair’ credit in the market.

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According to Tendayi Kapfidze, chief economist for LendingTree, “Credit scores and loan terms start to improve well before those seven years, as the foreclosure recedes into the background and is superseded by more recent information.”  The study shows also that most borrowers are able to reenter the housing market in as little as two years. It takes time and some effort but it’s possible to qualify for a mortgage after a foreclosure.