How To Rebuild Your Credit History After Foreclosure

Rebuilding a credit history after foreclosure could be a daunting task. With foreclosure, your FICO score typically dips anywhere from 250 to 280 points. The dip is recorded in your credit history, reflecting poor financial health and stability. Despite the magnitude of the hit, there are ways to rebuild your credit history to the point where you can again expect to find the best loans and interest rates.

Instructions

1

Analyze the situation. You can start to rebuild your credit history only after the reasons for the foreclosure are evaluated. What went wrong? Did you borrow more money than you could afford because you failed to budget effectively, or because a short-term setback such as a job loss or a health problem got in your way? Is the setback over and done with, or do you need to create a budget that will match your new circumstances?

2

Create a budget and stick to it. Once the reasons are evaluated, consider creating a budget and sticking to it.

3

Take specific steps to rebuild your credit history. Start using a prepaid credit card. This is a card that allows you to spend only up to an amount of money that you have placed on deposit with the credit card company. Even though you are effectively only spending your own money, using a prepaid card gives you a chance to establish a record of making payments on time -- an important factor in your credit score. In addition to this, if you still have outstanding debts, clear them off. Make extra payments every month beyond the minimums required. In the case of credit card debts, the lower your debt level in relation to the credit limits on your cards, the more positively your credit rating will be affected.

Do not close out your credit accounts once you have paid them off, though. The length of your credit history also plays a positive role with your credit rating, so keep cards that you have had for awhile, even if you carry zero balances on them.

4

Remain positive. Foreclosure is emotionally draining. It typically takes three years of consistent payments to rebuild a credit history after foreclosure and to reach a point where one is able to get a new mortgage and a decent interest rate. It's essential for families to work together as a team, to remain positive and try and make wise decisions.