After a foreclosure, your credit score will feel the impact. Your credit may even begin to suffer before the foreclosure is final. Although a foreclosure will remain on your credit report for at least seven years from the date of the sale, you can begin improving and re-establishing your credit immediately.
Participate in Counseling
Nonprofit housing counselors can help get you back on track after a foreclosure. The counselor reviews your finances to determine the reason for the foreclosure and how to adjust your spending to avoid falling behind on your current obligations. Creating a budget allows you to prioritize your expenses and implement new spending habits. You can locate a certified counselor by visiting the HUD website.
Keep Accounts Current
Maintain your current accounts even if they do not report to the credit bureaus. For example, cellphone companies only report to the credit bureaus if you default on the contract or have an outstanding balance that is left unpaid. Payment history accounts for 35 percent of your credit score, according to MyFICO.com. It is important to pay revolving accounts or loans in a timely manner. Keeping your accounts in good standing for a long period of time will also have a positive effect on your score since the age of an account also plays a factor.
Create New Accounts
Homeowners who have faced foreclosure often fall behind on their other lines of credit or accounts. If you do not have credit cards or loans, consider applying for a credit card. A credit card allows you to begin building positive history. Since credit cards typically begin with a low-limit, banks may be willing to extend credit to a borrower with a foreclosure. If credit card companies will not take a chance on lending you credit, a secured credit card is an option. Unlike a traditional credit card which is not backed by anything, a secured card is backed by collateral you provide. Consistent, timely payments will begin to boost your score. It is important to keep credit utilization in mind, as well. Avoid carrying a high balance on your accounts.
Monitoring Credit
After a foreclosure, order a copy of your credit report to ensure all the information is reported accurately. Dispute any discrepancies on the amount owed or balance of the loan. Review all accounts for accuracy. Since not all creditors report to each bureau, it is important to obtain copies of your credit report from the three major bureaus. Monitor your credit on a regular basis. You can request a free copy of your report from Equifax, Experian and TransUnion by visiting annualcreditreport.com
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