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By Brenda

How Eviction and Other Life Events Can Affect Your Credit

Mar 06 2018 Parent Category I

Being served an eviction notice can be a scary event. Along with being overwhelmed by emotions at the thought of losing your home, you may also start to panic at the thought of your financial future. Evictions are often the culmination of other issues happening in your life, such as exorbitant medical debt or recent job loss. To top it all off, an eviction can have a significant impact on your credit, and your ability to get new housing. In addition to eviction, there are also several other life events that can have an impact on your credit as well.

 

How an Eviction Affects Your Credit

If you have been served an eviction notice, it is usually because you either haven’t paid your rent or because you have done something that violates your lease. In order to be evicted, the landlord needs to sue you in court for nonpayment. In the event that they win, not only do you lose your home, you may be responsible for paying unpaid rent as well as court fees.

The eviction itself does not appear on your credit score. If the landlord sends your unpaid bill to collections, or if they win a claim against you, that is what is reported. This is treated just like any other unpaid debt, and remains on your credit report for 7 years, even if you pay it, causing a sharp drop in your score. The results of your eviction may also appear in the public records portion of your credit report, even though the actual eviction does not. All that anyone checking your score sees is a judgement against you by a property management company, and conclusions can be drawn from there. Even though it doesn’t show up as an eviction, your score still drops and the event can affect your ability to get new housing, to get a loan, get a new credit card, or even get a job.

 

Marrying Someone with Bad Credit

There are ways that marrying someone with bad credit can actually affect your own credit as well. Any accounts that you two keep separate, their score cannot affect yours. The ability of their credit to affect yours is possible if you share joint accounts, have cosigned a lease, or one of you has authorized use of the other’s credit card. If your spouse is irresponsible with their payments, or racks up a considerable amount of debt, these choices can impact your credit as well, even if you have nothing to do with them. It is also important to know that even if your spouse is working on their bad credit, your ability to get a mortgage or buy a car can be quite difficult.

 

Divorce

Divorce is already an emotionally devastating event. If you and your former spouse have any shared debts, whether they are credit cards, a mortgage, a car loan or something else, these debts are what can kill your credit score. When you signed the credit card agreement or the loan agreement together, you made a contract. Just because you are getting divorced, this doesn’t mean that the contracts are void. Both of you are still responsible for the accrued debts. If your former spouse decides to forgo payments on a loan or racks up a significant amount of debt on a joint credit card, it can have a major impact on your credit health.

 

Car Repossession

If you fail to make payments on your car loan, your car can be taken away by the bank. This can hurt your credit in a variety of different ways. First, the act of not making payments shows up on your credit report as late payments. The actual repossession can be reflected in your score. No matter if you voluntarily give up the car or they take the car by force, both of these have the same detrimental effects.

After the car has been repossessed, it is usually sold at auction. When it sells, it usually goes for less than what you owe. This deficiency balance is shown on your credit report, and it can stay there until the remaining balance is paid off. Even after the debt is paid off, the repossession can stay on your report for 7 years after the original delinquency was reported. Additionally, if the bank tries to sue you for the balance, that judgement can show up on your credit report as well.

 

Failed Business Venture

The idea of opening a business is exciting. If you are a new business owner, you most likely have to rely on your own credit score and finances to get it off the ground. This is because your business doesn’t have its own established credit yet. You may also be required to make a personal guarantee, which makes you responsible for payments on your business loan from your own money. If sales are not good, or your business fails altogether, you may fall behind in payments. As a result, your personal credit score takes a major hit, and can even throw you into bankruptcy.

 

Job Loss

The loss of your job does not show up on your credit report. In fact, creditors won’t even know about the event unless you call and tell them. That being said, job loss has an indirect effect on your credit score. When you are no longer earning a paycheck, you may fall behind on credit card and loan payments. You may start to accumulate more credit card debt in order to make ends meet. You may also open up new cards. All of these things can cause your credit score to plummet.

 

Death of a Spouse

Losing a spouse is one of the most devastating life events that can happen. Along with the emotional damage that you experience, you also have to deal with financial worries. Debts do not just disappear after death. Any debts your spouse held only in their own name become the responsibility of the estate. The debts that the two of you accrued together, however (loans, credit cards, etc.), are now your responsibility. With the loss of your spouse’s income or other benefits, it may become difficult to make payments, and you can fall behind, which can significantly affect your credit score.

Going through an eviction, or other major life event, is scary. You may feel as though you are out of options and that there is no hope. Fortunately, there are steps you can take to protect your credit and keep your home. Sit down with your landlord and try to work out an agreement that works for both of you. The worst thing you can do is nothing.

 

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