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24 October 2013

Good Credit After Foreclosure

Foreclosure can seriously damage a homeowner’s credit, typically dropping scores by 100 to 300 points.  It’s a harsh reality that millions of Americans are facing in the wake of a bad economy and high risk loans.  A foreclosure doesn’t have to loom over your credit score forever.  By establishing otherwise good habits in your credit […]

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Foreclosure can seriously damage a homeowner’s credit, typically dropping scores by 100 to 300 points.  It’s a harsh reality that millions of Americans are facing in the wake of a bad economy and high risk loans.  A foreclosure doesn’t have to loom over your credit score forever.  By establishing otherwise good habits in your credit history, lenders may overlook the singular event of a foreclosure.  Here are some great tips to help your credit score bounce back:

1)   Study Your Past Credit History.

It’s important to fully understand why you had a foreclosure in order to keep it from happening again.  A great way to do this is to take advantage of free credit reports, available to homeowners annually through each of the three credit reporting agencies: Experian, TransUnion, and Equifax.  A foreclosure will be listed in the “Public Information” section of the credit report.  Review all three credit reports carefully.  Doing so will give you the best idea of your credit history and how you can improve it.

2)   Use Credit Responsibly.

Credit utilization is calculated by weighing your total debt against your total credit.  It alone accounts for 30% of your credit score.  A high credit utilization can have devastating consequences on your credit, even more so if you’ve had a foreclosure. Decreasing your debt by paying off old balances will greatly improve your credit.  Keep in mind, however, that having a credit utilization of 0% can be just as unattractive to lenders. Once you have paid off past debts, demonstrating that you use credit and can use it responsibly is vital to gaining a lender’s trust.  To do this, many experts recommend maintaining a credit utilization of 30%.  In addition to keeping balances low, limiting the number of credit cards can ensure that you don’t overspend.

3)   Hold Off on Incurring More Debt.

To give yourself the best chance of being approved for future credit cards or loans, it’s important for lenders and creditors to see you have a well established track record of paying debts off on time.  You should wait until your current credit cards are properly managed, and your credit scores rebound to a reasonable number, before applying for any new credit cards or loans.

With calculated planning, focused effort, and enough time on, you can overcome the negative effects of a foreclosure and protect your financial future.

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