What happens to existing credit cards after foreclosure?

Answer 1

During the foreclosure process, there will not be adverse effects to a homeowners' credit cards if all are paid on time. If they fall behind, of course, they will have even more damage to their credit scores, and may face severely negative consequences from creditors. However, simply being in foreclosure itself will not cause homeowners to lose their credit cards or have interest rates increase or extra charges added.

Many credit card companies issue contracts that state that the company may be able to raise interest rates on the card even if the borrowers never miss a payment on *that* line of credit. If they miss a payment on any *other* credit card, said company may raise rates.

Even if a credit card is with the same bank as the mortgage, there is little that a mortgage company can do if a borrower's credit cards have not gone into default.

However, after a foreclosure has ended, and despite the fact that some owners may have been able to stop foreclosure, there will be severe damage to their credit reports from the late mortgage payments and/or foreclosure.

Such homeowners should be careful not to close out any credit lines that they may plan on using in the future. Because of the damage to their credit rating that late mortgage payments or a foreclosure will cause, it will be difficult, if not impossible, to qualify for new loans or credit lines with competitive interest rates for years after facing foreclosure.

Unless the homeowners voluntarily close their accounts or fall behind on the payments, the credit card companies will not do very much at all before, during, or after the home foreclosure process. The companies have no reason to take any negative actions against the borrowers just because they are facing foreclosure on a property they own. In fact, as long as the homeowners can keep on top of their credit card payments, they may try and request a higher credit line during foreclosure to be able to use some of that money to get back on top of the mortgage, although >>this is not a very sustainable solution<<.

On a somewhat unrelated note, just as homeowners who have Home Equity Lines of Credit on their properties and have had access cut off, credit card customers may also see companies start to decrease the total available to borrowers. Banks are beginning to realize that there may be a larger risk of default in consumer lending and are taking defensive actions to limit access to credit for debtors in the greatest danger of falling behind. So, before facing foreclosure, homeowners may want to consider cutting up their current credit cards and getting used to a life without borrowing money, since their lenders may cut off their access soon anyway.