How To Improve Your Credit Rating After Foreclosure

When going through a foreclosure , losing your home is not the only thing you need to think about. In fact, the affect it has on your credit score is perhaps more significant as it harms your chances of getting credit (including another mortgage) in the future. Foreclosure is one of the more serious “offenses” which harms a credit score and can drop it as much as 150 – 200 points. Not only that but it can remain on your credit report for a lengthy period of time – up to 7 years.

So that sounds pretty bad, right? But don’t despair, as there are things that you can do to help boost your credit score and build trust with lenders again.

Top Tips For Rebuilding Your Credit Score

• The first thing you need to do is analyze exactly why you defaulted on your mortgage. Was it something that was under your control or not? If it was the result of an unfortunate event such as the loss of your job or unexpected medical bills then there probably wasn’t much else you could have done. But if it was a result of reckless spending habits then you need to realize that you could have prevented the foreclosure and these spending habits need to change.
• Getting a free credit report. You are legally entitled to get a free report each year and by doing this you can see what situation you are currently in. How much has your score dropped as a result of the foreclosure? Furthermore, make sure it’s correct and dispute anything that doesn’t seem right.
• Try and pay off as much of your debt as you can. High debt to income ratios will not help your credit score; in fact it’ll probably impact on them negatively.
• Pay your bills in a timely manner. Most things are paid off monthly nowadays, anything from phone bills to gas bills and it’s important you make these payments in a timely manner. Missing or late payments are another thing which won’t do your credit score any good. It’s a good idea to set up a direct debit going out of your bank account to automatically pay these bills on or before the payment date. That way you won’t suffer if you accidentally forget your phone bill is due.
• You need to start budgeting. This point is particularly important if you are a reckless spender, as it’s these spending habits that have probably got you into this situation in the first place. Make sure you work out exactly how much you need to cover your bills each month and don’t buy a flashy new TV instead of paying those bills.
• Take out secured credit and make the repayments on time. Due to your low credit score, you probably won’t qualify for unsecured forms of credit, as the lenders simply won’t trust you enough to approve your application. With secured credit, you will be required to deposit an amount equivalent to the amount you are able to borrow (so $1000 if you apply for a credit card that has a limit of $1000), but this is a great way to show lenders you are a reliable person that can pay back credit on time.

Initially you might think that there’s no coming back from foreclosure, particularly where your credit score is concerned. But things will get better; it’s just going to take time. The most important thing is that you show lenders from this point on that you can be trusted. You can do this by making payments on time and never borrowing more than you can afford to pay back.

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