Foreclosures and Credit Scores

I had a client in this week that is getting ready to retire and owns a home which is severely upside down and had no way of being able to afford the home once retirement sets in.

Through the process of working with them, we talked about strategic foreclosures and the impact on them and their credit. I suggested they check out the 60 Minutes piece a couple of weeks ago on strategic foreclosures.

As everyone knows by now, of course any type of foreclosure is going to have an impact on one’s credit, but maybe there are ways to reduce the hit.

I gave this person an example of one my clients, for which we were monitoring their credit scores, that had a rental property go into foreclosure. At the time of foreclosure, last August, their score dropped by approximately 80 points from the reporting of the foreclosure.

But by the end of the year their score had actually increased to a point that was greater than where they started just before the foreclosure. By analyzing this we were able to determine that the money they were saving on the house payments which had been redirected to credit card debt, they were actually able to reduce their debt faster thus causing their scores to increase.

So if this could happen to one client why couldn’t the same thing happen to other people?

As I talked about in a past blog my personal belief is that the FICO system is antiquated and needs to be redefined, if people are going to be able to buy on credit again.

But in the meantime if we can all work on our credit the way this other client did then the credit hit may not be so bad.

I’ve been monitoring my own credit on a monthly basis and I have adopted a dispute strategy.

If at I anytime something appears on my credit that I didn’t authorize I am on attack mode and disputing the item. This week along I found that one of my lenders, did an inquiry on my credit. Bullshit to that and I disputed the action.

I am also doing this on my credit card, last week I noticed for the past several months, during tax season, which I usually don’t take the time to watch my credit card very closely, I was being charged approx. $35 per month from 2 recurring transactions.

You know from those online sites where you buy something then they automatically charge your account. I immediately thru my on-line credit card account disputed the items. And low and behold within 48 hours all the charges were reversed. And being the good PFC that I am, I immediately transferred the savings to my Frap Fund. Found money right!

But if we don’t watch our stuff this is the type of thing that can happen.

So keep on top of your account and save!!