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5 Strategies to Rebuild Your Credit after Foreclosure
If you've been through a foreclosure, you may wonder if there is hope
for you to become a homeowner again. The answer is yes, but it will take
a while. "
But you'll need to examine what caused you to fall behind on your mortgage
and take steps to fix the problem.
A foreclosure is a major hit to your credit history and stays on your
credit report for seven years.
Your credit score will also suffer as soon as the foreclosure process
begins. It doesn't have to be completed for it to be very damaging. The
damage will vary based on your scores, but it can damage the score as
much as 200 points, especially if your scores are very strong to begin
with.
So, after a foreclosure, your priority has to be rebuilding your credit.
You'll have some time to do so, because mortgage giants Fannie Mae and
Freddie Mac impose strict rules on how long it will take before you're
eligible for another mortgage.
For example, borrowers with a prior foreclosure and extenuating circumstances-such
as a job loss, divorce or medical issues-must wait three years before
they can qualify for a Fannie Mae-backed loan. For all other borrowers,
the waiting period is seven years.
At Freddie Mac, those who can prove extenuating circumstances must wait
three years before applying for a new mortgage; everyone else must wait
five years. But that will change in February, when the waiting period
for those whose foreclosure was caused by their own financial mismanagement
will increase to seven years.
Fannie Mae and Freddie Mac also have strict rules on the credit score
and the size of the down payment required of borrowers with a prior foreclosure.
Here's what you need to do to rebuild your credit to qualify again
for a mortgage:
Pay your bills on time: The FICO score, the dominant credit score used
by lenders, gives the greatest weight to payment history, so make sure
you consistently pay your bills on time.
Review your credit report: You're entitled to a free credit report once
every 12 months from each of the three national credit bureaus-Experian,
TransUnion and Equifax. You should get a copy and check it for any inaccuracies.
To get your free credit report, go to http://www.annualcreditreport.com.
Check your mortgage: You want to be sure that you don't still owe anything
on your old mortgage. Sometimes proceeds from a foreclosure sale aren't
enough to cover what's owed on the mortgage, which would leave you owing
the difference.
Apply for credit: In particular, apply for different varieties of credit.
Don't fall prey: Watch out for credit repair companies that promise to
clean up your credit report so you can get a car loan, a home mortgage,
insurance, or even a job-after paying a fee for the service.Only the passage
of time can assure that negative, but accurate, information on your credit
report will be removed.
When it comes to repairing your credit, there are no quick fixes, the
experts say. What lenders want to see is responsible financial behavior
over time.
Mary L. Chabot - Realtor
Real Estate Agent
508-847-0654
Mary.Chabot@NEMoves.com
