(LoanSafe.org) – One of the most daunting tasks you will face after a foreclosure is rebuilding your credit score. A foreclosure can seriously impact your credit score and you’ll find your score lowered 100-200 points from the time you first became delinquent.
A foreclosure will remain on your credit report for seven years and will limit your ability to obtain new financing or buy a home for years to come. While a foreclosure may seem like the end of the world for some, it’s most definitely possible to regain control of your credit with time and diligence.
Correct Any Errors on Credit Report
Obtain a copy of your credit report from all three credit reporting agencies. Each of the credit bureaus – Equifax, Experian, and TransUnion – (at request) is required to provide you with one free copy of your credit report every 12 months at annualcreditreport.com, or by calling 1-877-322-8228. Your credit report is your primary tool for monitoring your credit rating, and it’s recommended to examine the report frequently for possible errors or inconsistent reporting.
If any errors or outdated information is found, you’ll need to contact the credit reporting agency and information provider (i.e. the company, person, or organization that reported the derogatory) to inform them of the errors. It does not costs anything to dispute such errors, however it may be in your best interest to first write a dispute letter to the owner of the debt. Why? Although the CRA may agree to remove an error from your credit profile, that will not stop the derogatory from reappearing on the next reporting cycle. It’s advisable to download and read the Fair Credit Reporting Act (FCRA) so you can cite the proper verbiage in your dispute. If the creditor refuses to correct the error, write a letter to the Federal Trade Commission (FTC), who is the regulatory body in charge of enforcing the FCRA.
Continue to Pay All Debts on Time
Items on your credit report such as “maxed-out” credit cards can take a heavy toll on your credit score. In fact, your total outstanding debt compared to credit, or credit utilization, accounts for approximately 1/3 of your credit rating. To help recover from a foreclosure you’ll want to pay off any past due accounts as quick as possible. If you’re able to reduce your debt load to below the credit limit, your credit score will slowly, but surely begin recovering.
Rebuild Your Credit Score Using Credit Cards
Obtain a new credit card, or use an existing account to help you get back on track. A secured or unsecured credit card is one of the most effective options to begin rebuilding your credit. Future creditors will need to ensure you’ve been responsible since the foreclosure before approving you for a new car or mortgage loan. Show discipline by using your credit card every month to make small purchases, and always pay off the balance in full.
Once you have your spending habits under control, consider obtaining multiple types of credit simultaneously, including installment credit and revolving credit. Installment credit generally consists of car loans, student loans, etc., while items such as credit cards are considered revolving credit.
If you are unable to obtain a regular credit card due to the foreclosure or another negative item on your credit, apply for a secured credit card. With a secured you may be required to make a deposit against the credit limit, which the bank will hold as collateral if you were unable to meet your obligations. This will allow you to prove you’ve been responsible with your spending habits, and if you are able to maintain your expenses for a couple of years, your bank may offer you transition to an unsecured credit account.
Apply at a credit union. Credit unions are typically more forgiving on their credit requirements and offer low interest rates on credit card accounts. So even with a past foreclosure, you may be able to secure a new loan or unsecured credit card at a credit union.
Contact a Financial Counselor
Contact a HUD-approved housing counselor. HUD housing counselors help millions of consumers every year regain control of their finances and recover from awful events such as a foreclosure or bankruptcy. Counselors typically work for non-profit organizations that are trained to help you reach your financial goals, whether it be to avoid foreclosure, or recover from a recent foreclosure so you can buy a new home in the future.
Call the Homeowner’s HOPETM Hotline at (888) 995-HOPE, HUD at (800) 569-4287 or visit their website here.
Foreclosure can be a devastating event, but it’s important to realize that you can recover and obtain a new home in the future. Establish short- and long-term financial goals, and stay focused on the task ahead!