A credit score is a number that a credit scoring company, like FICO or VantageScore, develops based on what's in your credit history. Credit scores often range from 300 to 850, with a higher score supposedly predicting that someone is less likely to default on a debt. Creditors use credit scores to make decisions about whether to make a loan or extend credit.
Suppose you fall behind on the payments for a particular debt, like a mortgage loan or a credit card. The creditor will typically report the delinquency to the three main credit reporting bureaus (Equifax, Experian, and Transunion) as late 30 days, 60 days, 90 days, and so on. Each missed payment lowers your credit score. The more times you're late, and the longer you don't pay, the lower your score goes. Because credit scores are based on what's in your credit report, and the credit bureaus probably have slightly varying information about you, each bureau likely has a different credit score for you.
People who own a home in a planned community generally have to pay homeowners' association (HOA) dues and assessments. But HOAs don't always report late or missed payments to the credit reporting bureaus. So, if you don't pay your HOA, your scores might not take a hit. But if you lose the property to an HOA's foreclosure, your credit scores will likely drop. Exactly how far your scores will fall depends largely on how good your scores were before the foreclosure.
Because a company has to become a member of the bureaus to report delinquencies, many HOAs, which are often small organizations, don't bother. The cost and certain reporting requirements just aren't worth it to them. So, your HOA might not report your delinquent payments to the credit bureaus. But if the HOA sends the debt to a collection agency to try to collect from you, the debt collector might report it.
And if an HOA forecloses, the action will probably show up in your credit history—even if the HOA doesn't report it. Here's why: HOA foreclosures are judicial or nonjudicial. Judicial foreclosures go through the courts. Court filings are part of the public record. If the credit bureaus find out about an HOA foreclosure from the public record, which they usually do, the bureaus will add this information to your credit report. While nonjudicial foreclosures typically happen without any court oversight, the process often involves recording a notice in the land records. Like court filings, land records are available to the public. So, the credit bureaus can easily find this information and include it in your credit reports.
In general, a foreclosure will likely reduce your FICO score by at least 100 points, probably more. The actual number of points the score will drop varies from one person to the next. If you had a very high credit score before the foreclosure, the drop would be more severe. But if your credit score is already pretty low, the foreclosure will have less of an impact. Missed HOA payments can also lower your score if the HOA reports them to the credit reporting bureaus.
According to FICO, if you had a score of 680 before going through a foreclosure, your score will probably be between 575 and 595 after the foreclosure (a drop of 85-105 points). But if your score was 780 before the foreclosure, your score will likely fall to somewhere between 620 and 640 (a decline of 140-160 points).
When you apply for a new loan or credit, one of the first things the potential creditor will consider is your credit score. A foreclosure can remain on your credit report for seven years. But if you stay current on your other debts, your FICO score can start to recover in as few as two years.
Until your credit score begins to get better, though, a prospective creditor might turn you down if you apply for a new loan or credit, or the creditor might make you pay a high interest rate or fees.
If you're behind in your HOA dues, consider contacting the HOA to arrange a repayment agreement or another workout option before it initiates a foreclosure against you. If you need help negotiating with your HOA or the HOA has already started a foreclosure, consider talking to a foreclosure lawyer to learn about different options that might be available to you.