Rebuild Credit After Foreclosure
A foreclosure stays on your credit report for seven years, but don’t wait that long to rebuild good credit. Here are ways you can start the process now.
The immense sense of pride you feel when you close on a home is rivaled only by the grief that comes with foreclosure. But losing your home is not the end of the world. Though a foreclosure remains on your credit report for seven years, you don’t have to wait that long to rebuild your credit.
In fact, there are some steps you can take right now to start down the path to financial recovery:
Obtain your credit report.
It might seem like rubbing salt in the wounds, but there are other practical reasons for checking your credit score besides verifying that, yes, you’ve been through foreclosure.
First, it’s your right as a consumer. As mandated by the Fair Credit Reporting Act (FCRA), you can get a free copy of your credit report from each of the three reporting institutions every 12 months.
Aside from that, the Las Vegas Review-Journal advises you to check for old debts or any erroneous information. Dispute incorrect items. If you do find a bill that needs to be squared away, it suggests a late payment is better than no payment.
Get a secured credit card — and keep existing cards open.
Part of rebuilding credit is establishing trust in your ability to pay debts on time. A secured credit card, which requires you to deposit money into an account that then becomes your line of credit, is one way to do this.
Choose wisely, though. The San Francisco Gate recommends looking for an actual credit card, "not just a pre-paid card or a debit card."
Whatever you do, however, don’t close cards you’ve held for a long time, as doing so affects the length of your credit history, according to Forbes.
Budget and save money.
Regardless of the situation that caused your foreclosure, you’ll want to make some adjustments to your financial habits. One of the first things you’ll want to do, according to Credit.com, is save enough to cover six months of bills.
Tighten your belt, and you could pull off a financial rebound sooner than you think. CNN tells the story of one couple who purchased a home just two years after foreclosure. Their secret? Paying bills on time.
Find the lesson you’ve learned.
It helps to look for lessons in your foreclosure, because, inevitably, it’s going to come up in background checks run by creditors, landlords and, yes, employers. That means you’re going to have to explain what happened.
Yahoo Finance suggests "[outlining] how you have learned and improved since [your foreclosure]." By speaking openly your experiences, you'll show there’s more to the story than your credit score.