The Impact of Missed Payments and Foreclosures on Credit Scores

32 Pages Posted: 25 Oct 2014 Last revised: 23 Jul 2016

See all articles by Yuliya Demyanyk

Yuliya Demyanyk

University of Illinois at Chicago

Date Written: June 30, 2016


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

JEL Classification: G20, D10, R20

Suggested Citation

Demyanyk, Yuliya, The Impact of Missed Payments and Foreclosures on Credit Scores (June 30, 2016). FRB of Cleveland Working Paper No. 14-23, Available at SSRN: or

Yuliya Demyanyk (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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