Few things can affect a person’s credit rating as badly as a home foreclosure can. In today’s credit-based economy, having a home foreclosure on their record can make it difficult for consumers to purchase anything on credit.

A Foreclosure Means Paying Higher Interest Rates on Credit Purchases

Credit is a funny thing. The more money that’s borrowed and paid back on time, the lower the fees in the form of interest can become. But, for those who’ve had a foreclosure occur, interest rates on any future purchases will be much higher, provided of course that they can get credit to begin with. This happens because banks and credit card companies see them as high-risk consumers. A person’s credit rating can eventually be restored, but it can take a very long time.

Foreclosures Stay on Credit Reports for at least Seven Years

A foreclosure will stay on a person’s credit report for at least seven years after the default occurs. During those seven years it will necessarily lower their overall credit rating. Even after the seven year time period has elapsed, it is up to the consumer to contact the three major credit reporting bureaus to have the foreclosure removed from their credit report. These of course are Experian, Equifax and Trans Union. If the consumer fails to contact these bureaus to have the foreclosure removed, it may stay on their credit report indefinitely.

The Total Impact of a Foreclosure may depend on a Person’s Initial Credit Rating

Of course, not everyone is affected the same way during a foreclosure. How badly a person’s overall credit rating is hurt depends on how good their credit rating was before the foreclosure occurred. Those consumers who had excellent credit to begin with may still be able to borrow money or get credit cards as their overall credit rating may only drop down to an average rating.

However, those consumers who were on the edge of qualifying for a loan to begin with will most likely see their credit rating drop so low that they won’t be able to qualify for any type of loan for some time. These consumers will have a very difficult time rebuilding their credit rating as most lenders won’t be willing to take a chance on them. And when the time comes that they do finally qualify for a loan, the higher interest rate may make the loan too costly to afford, which would effectively keep them from rebuilding their credit.