Foreclosure
essentially means pre-closing your debts when you have sufficient funds with
you. Repaying your loan before deadline hits you can be assumed to be extremely
helpful. So, how does a foreclosure impact your credit score, if at all it
does. However, it’s not a direct impact but it does have an effect on the
credit score.
A foreclosure means an ongoing
loan will show closed on your credit report. This will directly reduce your
outstanding debt. This is progressive for your credit score.
If you do not have an existing
loan or credit card, then anyway your credit score will be lower than the
usual. If you do not have any credit
card, then anyway your credit score will be hugely impacted. Your credit score
will not only sink lower but may also not show any score at all.
There are certain factors which
must be taken into consideration when estimating the future credit score. If
you’re taking the first personal loan and foreclosing it too (lesser than a
year). This will not even support a strong credit score.
To be precise, it is encouraged
to try foreclosure and check your credit score after 2 months to know how it
actually works.
Common
Myths About Foreclosure of a Loan:
·
Pre-closing
your personal loan considerably helps your CIBIL score
If
your intention is merely to build on your credit score, then it will be an
unsuccessful attempt. This is still
going to compliment your credit score if have enough investment opportunities.
Avenues like mutual funds, stocks etc. can be extremely useful for building a
powerful score.
It’s a common myth to conceive that
a foreclosure will improve your credit score. And they take it as a guarantee
for future investments and loans. According to a recent study, a forced
foreclosure turns detriment to your credit score. You could be at unrest to
know how can a foreclosure hurt your score but we will help you understand this
better:
When you pay as per the
repayment distribution table, it reflects on your potential to repay. It also
throws light on how much you can afford with your current salary. Moreover, it
provides insights on how the financial position can shape in the future and his
ability to manage debt. However, if the individual repays the loan amount
before the tenure ends, then it directly influences the individual’s building
credit score. So it is true to believe
that a longer tenure will positively impact your credit score over a long
period of time. When all EMIs are paid on time, it only betters your financial
position from the market standpoint.
And ultimately when your credit
score gets affected, it is extremely tedious to have it back. This will only
give you a hard time at the instance of personal loan online approval. Also, your
future debts will be greatly affected as well.
Its significant to know that
the impact of a foreclosure is not as much relevant to financial
institutions. They are more interested
to know whether they will receive their interest portion on the loan or not. They
suggest borrowers to make repayments as per the pre-fixed schedule. Yes, they
would want borrowers to pay their loan according to the schedule that’s exactly
why a penalty is charged too.
To conclude, we must know that
an impact of pre-closure on the credit score will change from one individual to
another. Every person views it differently, depending on the credit history. It
is also import to understand that credit bureaus scrutinize each aspect
carefully and report the same into the credit report.
Read More: Read and Understand Your Credit Report
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