NCLC Issues Report on Effects of the Foreclosure Crisis on Credit Reporting
Negative credit reporting affects virtually every aspect of a person’s life: whether you can get a mortgage, whether you can get a loan, whether an employer will hire you, whether you can obtain insurance, and even whether a landlord will rent to you.
The effects of negative credit reporting can last for a significant time. Under current laws, a negative account can stay on your credit report for up to seven years. With certain types of bankruptcy, it can last up to 10 years.
The report explains that a negatively reported mortgage account can create a “vicious cycle” of being unable to climb out of financial difficulty. Your mortgage is one of the most significant accounts that creditors take into consideration when deciding whether to offer you credit. If your mortgage is overdue, foreclosed, or given back with a deed in lieu of foreclosure or a short sale, creditors will be less likely to extend credit to you – or if they do, they may offer it at significantly higher interest rates.
And with a higher interest rate, your monthly payments will be higher, stretching your budget. This can cause your other accounts to go behind, making it even harder to obtain new credit or meet monthly obligations.
Additionally, some banks incorrectly report loans that have been modified, or list loans as foreclosed when they have actually gone through a short sale. Although such incorrect reporting violates the Fair Credit Reporting Act, many homeowners do not regularly review their reports, and their credit is damaged.
The author, Chi Chi Wu, concludes by making the recommendation that negative accounts should be reported for shorter times, and that credit reports should not be considered in connection with employment and housing.
The full white paper on credit reporting is available through the NCLC.