The Impact of Missed Payments and Foreclosures on Credit Scores

Yuliya Demyanyk

No 1423, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper debunks the common perception that ?foreclosure will ruin your credit score.? Using individual-level data from a credit bureau matched with loan-level mortgage data, it is estimated that the very first missed mortgage payment leads to the biggest reduction in credit scores. The effects of subsequent loan impairments are increasingly muted. Post-delinquency foreclosures have only a minimal effect on credit scores. Moreover, credit scores improve substantially a year after borrowers experience 90-day delinquency or foreclosure. The data supports one possible explanation of this improvement: the absence of mortgage payments relaxes the borrowers? budget constraint, allowing them to restore other forms of credit.

Keywords: Credit Score; Foreclosure; Delinquency; Crisis (search for similar items in EconPapers)
JEL-codes: D1 G2 R2 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-10-27
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The impact of missed payments and foreclosures on credit scores (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1423

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DOI: 10.26509/frbc-wp-201423

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