Many consumers ask what will happen to their credit cards if they lose their homes. There will be no immediate negative consequences to credit card accounts during the foreclosure process as long as the consumer is keeping on time with payments. However, since a foreclosure appears on a consumer’s credit report, credit card companies may ultimately raise interest rates or cancel the card.

Foreclosure alone is usually not sufficient reason for a credit card company to cancel an account, but the consumer should be aware that it could happen. Many credit card accounts have a “Universal Default” clause. This is a statement that advises consumers that the creditor has the right to raise the interest rate even if the borrower has never been late on that account. Missing a payment on a single account gives all other creditors the right to raise rates. Consumers may see their interest rates go as high as 25-30%.

Creditors may review a consumer’s report as often as monthly, and may increase interest rates and reduce or cancel credit if a borrower is considered to be at high risk. The definition of high risk varies from bank to bank. Long before the consumer is threatened with foreclosure, delinquencies have appeared on the credit report. A single thirty day delinquency may be all it takes to have some type of adverse action by the credit card company. Banks may cut off credit to consumers who seem to have the greatest danger of falling behind.

Facing foreclosure usually leads consumers to completely rethink their finances. One thing consumers may want to consider is how to live within their means. A good habit to develop is only borrowing as much money as they can repay the same month, or keeping balances within 10% of their limits. They should also try to get in the habit of living without their credit cards, because it is possible that they may soon have to get by without them.

On the other hand, consumers should not be in a rush to cancel existing credit cards or lines of credit, even if they are making an effort not to use them. Foreclosure will severely damage a credit report and make it difficult or impossible to open new accounts at a reasonable rate for several years. The consumer should make an effort to get all payments in on time.

If a foreclosure is the only bad mark on a consumer’s credit report, consumers should be able to obtain better loans in as little as 24 months. Most consumers who experience foreclosure also have other credit problems, and rehabilitation may take several years.

Foreclosure is not the end of the world and it’s not the end of a consumer’s borrowing opportunities. A foreclosure remains on a consumer’s credit report for seven years and will impact their credit most significantly during the first few years. As more time passes and more good credit decisions are made, the consumer will be able to improve their credit score and eventually repair their credit.