selling | Foreclosure | Credit Score

Avoid Foreclosure and Protect Your Credit Score

Written By The Simply Homes Team | July 31, 2023 | 5 minute read

Foreclosure is a stressful and overwhelming experience that affects your credit score, making it significantly more difficult to access credit in the future, especially for a new mortgage. Avoiding it at all costs must be the top priority for anyone in that situation, and many see selling their property as a way out of this dire situation.

How does selling your property to avoid foreclosure affect your credit score, and what can you do to minimize the damage? First, how does credit score work? The credit score is calculated based on the following factors:

Payment history is the most influential factor in your credit score, accounting for 35% of it. Late payments, missed payments, and defaults can significantly damage your credit score.
Credit utilization represents 30% of your credit score, and it's based on how much credit you're using compared to your total available credit.
Length of credit history accounts for 15% of your credit score. It reflects how long you've had credit accounts open.
Credit mix constitutes 10% of your credit score, and it's based on the types of credit you have, such as credit cards, loans, and mortgages.
The last 10% of your credit score goes to how many new credit accounts you've opened recently.

As you can see, payment history and credit utilization account for 65% of your credit score, and are effectively the two items you have more control over when you sell your property to avoid foreclosure.

Regarding payment history, the sooner you recognize that you won't be able to keep up with your mortgage and sell your property, the less impact late payments will have on your credit score. The closer you are to foreclosure, the more missed payments will be on your credit score. Avoiding missed payments must be your top priority.

Another thing to take into account when selling is reducing your deficiency balance as much as possible. The deficiency balance is the difference between the amount you owe on your mortgage and the amount you sell your property for, which your lender can report to the credit bureaus as a debt, negatively impacting your credit score. However, if you negotiate a short sale or deficiency waiver with your lender, they may agree to forgive the deficiency balance, minimizing the damage to your credit score.

On the other hand, Credit Utilization is based on how much credit you're using compared to your total available credit. When you sell your property, you'll pay off your mortgage, which will reduce your available credit. If you have other credit accounts, such as credit cards, these debts will represent a larger proportion of your available credit, increasing your credit utilization. However, if you pay off your other credit accounts before you sell your property, you can minimize the impact on your credit utilization.

If you are in a foreclosure situation, the other aspects of how your credit score is built - Credit Mix, Credit Length and New Credit accounts- are somewhat outside of your direct influence, and their overall impact on your credit score is not that significant.

Protect your credit score - The Simply Way

To avoid the harshest consequences to your credit score of selling your house to avoid foreclosure, you need two do two things: sell fast and sell for the best price possible. Simply Homes is the way to go.

At Simply Homes, we want to understand what is behind every home sale and strive to use all our technology to give you the best cash offer possible for your home "As-Is" in as little as 30 seconds.

Put yourself in the best position to be a homeowner once again. Avoid missing payments and foreclosure. Sell to Simply.