Home ownership has been the American dream. But the recent housing bust and recession will impact many credit scores for years to come. Think about all the skyrocketing foreclosure rate and homeowners abandoning their mortgages.
How many homeowners who can’t make a few mortgage payments think walking away from their home is the simplest–and cheapest–way to plug the money leak? After all, who wants to be “upside down” on their mortgage, not able to make, payments and not able to sell the home? I’ve even heard of some instances where homeowners with equity of 20% or more are considering this strategy if they should lose their jobs.
Whoa! Before making the rash decision to give up making mortgage payments, think about the long-term impact of walking away from that debt. Specifically, what happens to your credit score and your ability to buy another home someday?
You better believe someone is following your current financial behavior–namely three national credit bureaus. They maintain files on your credit worthiness and reliability by tracking how you pay bills and use credit available to you.)
The lenders consult these bureaus to access your credit report and FICO score (the tool they use to determine how much you can borrow). Fair Isaac Corp. is the original creator of the FICO score.
A few days ago, Fair Isaac and the credit bureaus began collaborating to reconsider how consumers’ default risk is determined, however, and outlined some revisions. We can expect change (and coming legislation) that affects how your score is calculated. Stay tuned.