Are you struggling financially and believe that foreclosure might be your best option? Before you jump into the foreclosure process, stop and think about what it might do to your credit score. A foreclosure can have a drastic effect on your score and hamper your ability to borrow money for years into the future.

Continue reading to discover why your credit score is important and what a foreclosure might mean for it.

What Is Your Credit Score

You might have heard that your credit is important or that you need to have a great credit score, but what exactly does that number represent? Your credit score is a numerical representation of how likely it is that you will pay back the money that you borrow. A bank or other lender can look at this score and fairly quickly tell what level of risk they will be taking by lending you funds. A better credit score means that you will be more likely to be lent the money you need and possibly be offered a lower interest rate. Poor scores will likely see your loan application rejected or accepted but at a much higher interest rate. 

How Foreclosure Affects Your Credit

Now that you understand what your credit score means to a lender, let's talk about how a foreclosure will affect your credit. Any missed loan payments will negatively affect your credit.

To start the foreclosure process, you must have fallen well behind on your mortgage payment, meaning that you have missed many monthly payments. The fact that you have not paid your mortgage will already affect your credit score, and you have not even begun the formal foreclosure process.

Assuming that the foreclosure goes through and you walk away from your home with the lender assuming ownership, this negative hit to your credit report will remain for a full seven years from your first missed payment.

After seven years, the foreclosure will drop off your credit report automatically.  For the duration of this time, however, it will be very difficult to get a loan for anything, including autos and any other loans not related to real estate. While it is difficult to secure a loan, it isn't impossible. Some lenders will still lend you limited funds, but the interest rate will likely be considerably higher than what you could be offered if you had avoided foreclosure.

Alternatives To Foreclosure

Your first action when you think that you might miss a payment or already have missed one is to reach out to your lender. They will be able to walk you through your options, offer payment schedules, and work with you if you believe that your inability to pay is a short-term issue. Your lender would rather work with you than foreclose on your home.

If your financial situation isn't likely to change in the near future and you still want to walk away from your home, there is an alternative to foreclosure. Selling your home to a real estate investment company might be your best option. Manifest Home Buyer helps connect real estate investment companies with homeowners who are motivated to protect their credit.

A real estate investment company can make you an offer and assume ownership of your home. You can use the proceeds from the sale to pay off or considerably reduce your mortgage balance. By paying the lender, you will be protecting your credit score.

Manifest Home Buyer is a company dedicated to helping you. If you find yourself in financially challenging times and don't know where to turn, the key is to reach out for help.

Keep in mind is that foreclosure should never be your first option and is rarely your best choice.