One financial misstep can remain on a consumer's credit report for years to come, making it significantly more difficult to obtain favorable interest rates on credit cards, inexpensive insurance and even some job opportunities.
Paying bills late and filing for foreclosure, for example, will both remain on a report for seven years. A growing number of consumers found themselves in these situations during the first quarter of 2010, according to a recent report by the Mortgage Bankers Association.
The percentage of loans in the process of foreclosure reached a record 4.63 percent, representing a five basis point increase from the fourth quarter of 2009. This number is also 78 basis points higher than that reported during the first quarter if 2009.
Serious delinquencies were not the only problem Americans faced. The percentage of borrowers who had fallen behind on at least one mortgage payment increased to a seasonally adjusted rate of 10.06 percent, according to the report. This is 59 basis points higher than that witnessed during the fourth quarter of 2009.
On a non-seasonally adjusted basis, however, the percentage of loans in foreclosure or early delinquency dropped from 15.02 to 14.01 percent. This may indicate a leveling off of foreclosures, according to MBA chief economist Jay Brinkmann, as a result of other economic factors.
"The percent of loans behind one payment had been declining as first-time claims for unemployment began falling in March 2009," Brinkmann said. "Those new claims stopped falling during the first quarter of this year, which likely halted the decline in the underlying 30-day delinquency rate."
Unemployment levels have decreased in recent months, after peaking at 10.1 percent in October. Despite 290,000 jobs being added to the payroll that month, the unemployment rate rose to 9.9 percent in April, after three months of stability.
Florida was among the states hit hardest by the foreclosure crisis, and continued to witness high foreclosure rates during the first quarter, according to the report. Other states that struggled during previous years, like California, experienced improvement while Maryland, Oregon, Washington and Georgia reported worsening conditions.
Recent data from foreclosures website RealtyTrac showed there were 333,837 foreclosure filings in April, a 9 percent drop from the previous month's figures. This was 2 percent below the levels witnessed during April 2009, representing the first year-over drop in RealtyTrac's history. Bank repossessions also hit a record high that month.