Restoring Your Credit after a Foreclosure

A foreclosure can lower your credit score as much as 300 points, which makes it harder to get future credit and may even affect your ability to move into a new residence. If this has happened to you, there are some steps you can take to get your credit back on track.

  1. Get a copy of your credit report and dispute any inaccuracies. While it might be a little painful to look at a copy of your credit report at this point, it is an important step in making sure that there are no inaccuracies or misinformation that could be causing further damage. If you do find any problems, contact the credit reporting agencies to dispute the claims. You might find it helpful to enlist the services of a credit repair agency for this step.
  2. Pay your remaining bills on time. Missing payments can really hurt your credit score, so make sure that you pay any remaining bills on time. If you currently owe more than you can afford, try talking to your creditors to see if you can lower your monthly payments. You may also need to change your spending habits. Cut up or get rid of any credit cards that you don’t need.
  3. Keep a low debt-to-income ratio. About 30 percent of your credit score is made up from keeping your balances low. Try to pay more than the minimum payment on all your bills whenever possible.
  4. Try to negotiate the removal of negative items. While a foreclosure will stay on your report for about seven years, you might be able to negotiate with your creditors to get other negative items removed. Reach a deal in regards to payment terms. You may be able to offer a lump sum payoff in exchange for the removal of these items, but it’s a good idea to get the agreement in writing.
  5. Be patient. Your credit score will go back up, but it often takes time. To completely recover your credit, it will likely take seven years for the foreclosure to fall off your report. Be patient until then and learn how to manage your money wisely.

John Simmons is a financial advisor living in the Dallas, Texas, area. He writes on such topics as money management, creating wealth, and credit repair software. When not helping people with their personal finances, John likes to golf.

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