Owning a home is a dream for many Americans, but this could quickly turn into a nightmare if you happen to fall into financial hardship. Losing your home to foreclosure is one of the biggest fears for homeowners. In July 2014, 1 in every 1,203 housing units in the U.S. was in foreclosure, according to real estate data provider RealtyTrac. After a series of declines in foreclosure filings this year, total foreclosures nationwide have been on the rise.
The damage foreclosure has on your credit history could lower your score by the triple digits, according to Realtor.com. Depending on your credit standing before the foreclosure, homeowners might see more of a hit on their credit score if they had outstanding payments or an overall poor credit history. With a lower credit score, you might not qualify for another mortgage and the effects of a bad score could also reduce your ability to be approved for a new credit card or loan. Your credit history could also impact your chances of landing a new job.
While it might seem your credit score might stay on a permanent slump after having to undergo the foreclosure process, there are plenty of opportunities to repair your credit score and make your dream of owning a home a reality again.
Here are ways to bounce back after going through a foreclosure:
Minimize the Number of Negative Items on Credit History
While foreclosure will result in sinking your credit score, you can lower the impact it has on your credit worthiness by making sure there are no other negative items on your history. If foreclosure is the only blemish on your credit history, you have a better chance of recovering from this and fixing your credit faster. Request your credit report and determine whether there are negative items, such as overdue payments, that are listed on your history. Often consumers will have errors on their credit report that could bring down their score even further.
Give it Time for Foreclosure to Disappear from Your Credit Score
As with other negative items, a foreclosure will remain on your credit history for a certain amount of time before it is no longer reported to the three main credit reporting bureaus. A foreclosure will stay on your credit report for up to seven years. As time passes, the effects of a foreclosure on your credit score will lessen.
Keep Other Credit Lines in Good Standing
Although a foreclosure will remain on your credit history for up to seven years, you could reduce the impact of this event by making sure to make timely payments on your other credit lines and ensuring you are in good standing. Taking the steps necessary to keep your other lines of credit in great shape will not only lower the hit your credit history will take from foreclosure but also help you maintain your credit score in order to qualify and be approved for a mortgage later on.
Start Small in Building Credit
As you continue to make headway in your other credit obligations, you should concentrate on building credit on your existing credit lines. With your credit cards, you should pay off your balances and have a good credit utilization rate (30 percent or less) that indicates you are spending within your means. By making payments on time, you can repair your credit history and ensure you are not affected by foreclosure for long. When seeing a record of consecutive on-time payments, lenders might give you the opportunity to be approved for small loans that can also build up your credit.