A foreclosure or bankruptcy will have a significant impact on a borrower’s credit score. A credit score is a number that represents an individual’s creditworthiness and is based on their credit history, payment history, and other factors.

A foreclosure or bankruptcy will negatively affect a credit score by causing a significant drop in the score and remain on the credit report for up to seven years for foreclosure and seven to ten years for bankruptcy.

When a borrower defaults on a mortgage and goes through foreclosure or bankruptcy, it is reported to the credit bureaus which typically results in a credit score drop of up to 200 points or more. Typically this will place a person in the 500-550 range of credit score. This significant drop in score is due to the fact that foreclosure or bankruptcy is a severe delinquency and indicates that the borrower did not fulfill their financial obligations.

The foreclosure or bankruptcy will remain on the borrower’s credit report for up to seven years for foreclosure or Chapter 13 bankruptcy to ten years for Chapter 7 bankruptcy. It will impact a person’s ability to obtain any credit, buy property, take out loans, or get favorable interest rates in the future.

A deed in lieu also affects credit scores to a lesser extent and will remain on your credit record for 4 years. A short sale has minimal impact on your credit record. Potential lenders view the recorded foreclosure or bankruptcy as a significant risk to future loans and will be hesitant to extend credit or if they do extend credit will most likely charge higher than normal interest rates or fees.