Foreclosure is always a difficult process to go through and the trouble doesn’t stop at losing the house, but it also affects the rest of your credit rating as well. It is more difficult to buy larger ticket items even if you can now afford them and it can be close to impossible to obtain a personal loan.
In this type of situation, it is important to start repairing the credit as quickly as possible at the same time as being legal. This process might seem overwhelming but if you know the steps to take in completing this task, then it can be a lot less stressful.
Examine the Reason for Foreclosure
It may seem obvious to you why the foreclosure happened but there is usually something behind the more obvious answer of not being able to make the payments. It could have been the wrong type of mortgage, the interest rate, the lender not being completely honest with the mortgage and so on. When you discover the reason, you can avoid this situation the next time and make improvements for the future.
Obtain a Credit Report
There might be a number of reasons behind your poor credit aside from a foreclosure. To know exactly why your credit is poor, you need to obtain a credit report. There are three agencies that report credit – Experian, TransUnion, and Equifax. It is wise to obtain a report from all three agencies and take a good look at them. Only when you know what is on the report, can you start to fix it. To help you understand the report, there are instructions that come with it. Read these instructions to fully understand what it is that is required of you.
It is possible that there are mistakes on these credit reports. In the event that this has happened to you, it is vital that you have these mistakes corrected. You will need to file a dispute with the particular agency that has made the mistake or all three, depending on the error and how many were involved, as they are separate agencies.
Create a Budget and Stick To It
Add up all of your income and your expenses then subtract the expenses from the income. The amount that is left is the disposable income that can be put towards savings or in your case, perhaps towards extra bill payments. If the income doesn’t cover the expenses then you will need to cut down on the expenses.
To create a weekly budget, divide the amount per month by the number of weeks. This might help you plan your spending a little better.
Cut Down Expenses
Even if you have enough money to cover the expenses, when you cut down your spending, you have extra funds to put towards other debts. You can save money by not eating out as much, by only buying the essentials, cutting down on the electric or water bills, and so on. Whatever money that you save, whether it is $50 or $500, can be put towards debt or a savings account.
Pay Off Debt
Debt contributes to bad credit so if you have been foreclosed upon, having other debts brings your credit rating down even further. Clearing up this debt will make the rating much better. It is not always possible to clear up the debt quickly but working on it consistently helps a lot as well.
Make Payments on Time
It is not just making the payments that count but also paying them on time. Late payments, even if just one, can put the credit rating back down and it is for this reason why you need to make these payments on time or even early when possible.
On another note, making late payments on a credit card gives the lender more reason to increase the interest rate. The rate can literally jump from 19.0% to 27.5% or more without any notice. This makes it more difficult to pay off which is another reason to be punctual with payments.
Seek Professional Help
There are some cases that it is not possible to deal with debt alone and if you are in such a situation, you are advised to contact a professional. This does not mean that you have to spend thousands of dollars for advice. If you have a bank account with a specific bank, often times, these banks have financial advisers that can help for your free. You just have to make an appointment to see them and they can review your case and help you to find ways to reduce your debt.
If other help is needed such as settlements for debt or bankruptcy, there are fees that apply. This is the time when you need to count the cost as to whether or not it is worth the price or if you can complete these processes alone.
Avoid Creating New Debt
There is little sense in paying off one debt only to create another. Once you are paying off a debt, don’t add any more onto it. For example, if you are paying off a credit card bill, then avoid using that credit card so that the balance will be reduced.
Keep Positive Accounts Open
In the case that you have a credit card or an account that has been paid off or that has a positive amount of money on it, this should be kept open because it is good for the credit.
Open a New Account
Once you start to pay off your debt, you will be able to obtain approval for another credit card. When you are approved for a credit card and manage it well, it improves your credit rating. It might take some time to achieve this but it depends on what you apply for and how much you have been able to work on your debt. In either case, having a new account approved is a good thing that can work in your favor if you manage it well.
Working It for the Long Run
It might seem like it takes a long time to improve the credit rating, and it can but it is worth it. When you follow these steps and do as much as you can, the effort pays off and even within several months, you will be able to see an improvement in your credit score.
References:
http://www.foreclosurefish.net/foreclosureblog/2008/10/how-to-repair-your-credit-after-foreclosure/
http://credit.about.com/od/creditrepair/tp/credit-repair-foreclosure.htm