Cleaning Up Your Credit After Foreclosure

Foreclosure hurts your credit, there’s no way around it. You can expect your score to drop by 100 points or more. The higher your credit score at the time it happens, the more it can drop — up to 160 points. Ouch. A foreclosure will stay on your record for seven years from the date of the first missed payment, but that doesn’t mean your entire credit reputation remains crushed for that entire period. If you begin the clean-up immediately, you may even be able to purchase a new home within five years. Let’s talk about how to fix your credit after foreclosure, and a quick tip for how to stop a foreclosure at the last minute.

Consolidating for the Win

With your foreclosure in the rear-view, it’s time to start thinking of ways to highlight the strong suits of your credit report. Consolidating your remaining debt may be able to help. Take your credit card debt to a personal loan, and suddenly your debt to credit ratio is exponentially improved. Consolidation also makes it easier to stay on top of future payments and avoid falling behind. Behind on credit cards, too? Try negotiating. You may be able to clear the debt for about half of what you owe. Make sure you shop around for the best possible interest rate (keeping in mind that it won’t be great given that you just added a foreclosure to your credit report).

Keep Accounts Open

Longevity is an important part of credit worthiness. Keeping old accounts open can salvage your credit score and help you bounce back sooner. Sometimes when we pay off a card, our instinct is to close it to avoid running it up again. In reality, keeping the account open with a $0 balance does more for your reputation. This shows creditors that you can responsibly manage available credit and keeps your debt to credit ratio lower. You may also be unlikely to get approved for new credit for a while, so hold on to the options you have already in case of an emergency.

Stop Applying for New Credit

Don’t panic apply for new credit. You might be tempted to apply for new loans or other credit right before the foreclosure hits your record. Don’t. A surge of new credit applications will drop the score on anyone’s credit report. And you’re about to be dealt a major blow with the foreclosure. Don’t add to the credit pain by opening a bunch of credit cards. It just makes it seem like not only are you losing your home, but you are frantically moving toward overextending yourself again. Only apply for new credit accounts as absolutely necessary. If you don’t currently have any credit cards, it might be helpful to open one card and pay it off monthly to start earning back the trust of lenders.

Pay on Time

One of the most important factors for your credit score is how well you pay things on time. Even as you approach foreclosure, try to make the minimum payments on other credit debts. Simply keeping current on other accounts will help offset the damage done by having your home foreclosed upon. As we mentioned above, consolidating debts may be able to help you stay current.

If you’ve not yet hit the point of foreclosure, it may not be too late to stop your credit from being ravaged. Are you just a payment or two behind? Stop the bleeding (and the foreclosure notice) by calling California Family Homebuyers. We can often close within a week or two, and you can pick the closing date. You may be able to settle your debt with the lender before you officially get foreclosed upon. Give us a call today to see if we can help! We accept Sacramento homes in as-is conditions.

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