Q: I have a credit card with an unlimited credit amount. I paid the balance off in full each month. I have had a good credit score but I’d like to know if it’s because my card doesn’t carry a balance or because I pay my bill on time each month.
Would it help my credit score if I got another card and carried a balance on this?
Also, I’m now facing a problem with my income and my mortgage is in jeopardy. Soon, I’ll run out of resources to use to pay the mortgage and am considering allowing the lender to foreclose on the property.
Will my credit score fall if the house goes into foreclosure? And, how much will it go down? And, does it help if I pump up my credit by getting other credit cards before the foreclosure happens?
A: Never take on a debt or a credit card balance in order to increase your credit score. It won’t help. Keeping your line of credit open and active (with a paid off balance) is a good move.**
If your house goes into foreclosure, you might take as much as 150+ point hit on your credit score. However, when a person goes down the path of foreclosure, they usually end up missing multiple loan payments before the property ends up in foreclosure. Those missed payments hurt your credit and then the foreclosure action hurts your credit even further. So you might see a drop of 100 points when you fail to make multiple mortgage payments and then see an additional drop of 50 to 150 points due to the foreclosure.
While credit scoring systems are proprietary and some people may see a greater hit while others a lesser hit, you should expect that your credit score will drop 100 to 150 points at a minimum, and possibly much more.
I’m hoping you don’t wind up there, but if you do, it’s not the end of the world. You are in the same boat as millions of other homeowners and if you end up going down the road of foreclosure, you will need to rebuild your credit over the next several years.