A foreclosure will be a damaging mark on your credit score for up to seven years, especially if you are in the market to buy another home. However, if you have a bad credit
score because of a past foreclosure, it doesn't mean that you can't take some essential steps to help improve your credit now so you will be able to purchase a home again in the future.
During the first couple of years after a home foreclosure, lenders will not generally approve you for a new mortgage loan. However, this will give you the time to straighten out your finances and repair your credit.
There are some steps you can do to improve a bad credit rating. Make sure to pay your bills on time and keep open a least two major credit cards to build a new solid credit history. If you don't have any open credit cards and/or you can't get approved for one, apply for a secured card. Lenders will want to see a dependable track record after your foreclosure. Mortgage lenders will review the last three years of your credit history so it will be important to document in writing why you have a past foreclosure on your credit report.
You will also want to pay off any judgments or accounts that are in collections. Start with the smallest accounts first and pay off the highest account last. You may also want to sign up for credit monitoring so you can see how your credit score changes on a month to month basis. Your goal will be to get your score above 620 once again.
When it comes time to buy your new home, you will need to have some savings to use for the down payment. The mortgage interest rates you may receive, after a foreclosure, will be high. These rates can be up to three or four percentage points above current market rates. You can improve your chances of getting approved with a lower rate by putting 20 percent down. You may also want to apply for a loan through a mortgage broker. These brokers can submit your loan application to multiple lenders and help you get the best interest rate available for your situation.
Patience is necessary to improve your credit rating and to save for a down payment. If you draft a budget and pay your bills on time, you will be on the road to home ownership again.
You may want to also read Stopping A Foreclosure On A Home
Although all information has been written in good faith and reviewed, please email us at [email protected] to report any inaccuracies or if you feel that you may have some valuable advice to add about repairing credit after a home foreclosure.