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How Foreclosure Affects Credit

The impact of foreclosure on an individual's credit score depends on a number of factors. The length of time mortgage payments have been delinquent is a primary factor that influences how a foreclosure event will affect credit standing. Also, a higher credit score prior to default will have a steeper decline and may take longer to fully recover. If there was an ongoing delinquency on the mortgage or other credit obligations, the credit score has most likely already declined before the foreclosure. Conversely, if a homeowner is current on all other debts at the time of foreclosure and still has the ability to cover debt payments, their credit score will be more negatively impacted but they should have an easier time rebuilding their credit. If the homeowner has been delinquent with their mortgage for some time and is behind on other lines of credit as well, the impact of the foreclosure on their credit score may not be as severe but the will probably be facing a longer road to recovering their credit.

Foreclosure stays on a person's credit report for seven years and will impact their ability to buy a home for at least three years. The good news is that the impact of the foreclosure decreases over time, particularly if the former homeowner is able to re-establish a positive payment history on other credit lines and debts.

Credit Counseling

There are a number of national organizations that provide credit counseling and can help with rebuilding credit. Working with a qualified organization and consulting with a counselor to help guide the process of evaluating the current financial condition and developing a plan to get back on track may be of value to some people. Many of these organizations offer their services for free or at a very low cost. Following is a sampling of national organizations that provide such services:

National Foundation for Credit Counseling (NFCC)

The NFCC is a national non-profit network of nearly 850 locations. The agencies offer a range of services including money and credit management education, credit and debt counseling. Services are provided in person, over the phone or online. For more information, call 1-800-388-2227 or visit www.nfcc.org/CreditCounseling/counseling_guidelines.cfm.

HUD-Certified Counselors

A good starting point to find out about local programs is a HUD-approved housing counselor. While these counselors specialize in homeownership counseling, many also provide basic financial counseling or can refer you to a reputable organization in your community. For a listing of HUD-approved counseling agencies, call 1-800-569-4287 or visit www.hud.gov.

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