Foreclosure rates have more than quadrupled from 2005 to 2010 since the subprime mortgage crisis affected every neighborhood, suburb, and urban area in America. In 2010, the number of loans in foreclosure increased to 4, 6% according to the US Census, as millions of homeowners across the country faced huge levels of negative equity and higher mortgage payments due to adjustable mortgages. For thousands of Americans who were not underwater in their homes, resignation, high unemployment, and falling wages meant that their dream home was no longer affordable.
In addition to the emotional stress of losing your home, foreclosure is also one of the worst impurities a consumer can have on a credit report, and it can stay there for up to seven years. However, if you are protected, you can rebuild your credit score and in some cases, you can see your score after just a few months.
How foreclosure affects your credit score
Because mortgages are considered one of the safest forms of credit, Credit scores outweigh other types of credit, and late payments on a mortgage cause the most dramatic falls in a Credit score. In extreme cases, a 30-day delay may result in a borrower’s credit score falling by more than 100 points. After 90 days it can fall another 30 points, and when the foreclosure is finally reported to the credit office, the score can drop by another 30 points.
Even homeowners with perfect Credit scores see that score pass “reasonable” and “poor” if they can no longer keep track of payments. When this happens, it is very difficult to get new lines of credit – especially people-rich loans, credit cards, and department store cards.
Although it is difficult to improve your score, it is not impossible and it becomes easier over time. A few simple steps and careful planning after foreclosure can help to return this score to a fair, good and ultimately excellent territory.
How to improve your credit score after foreclosure
1. Save your credit cards and use them
Foreclosure homeowners often worry that a mortgage standard means that they lose access to all assets. Although it is possible that some credit card providers can and want to close a customer’s credit cards when they discover that he or she has defaulted on a home loan, this is not inevitable.
When you are faced with a foreclosure, it is important to remember that this is not the end of your financial life and you still have access to credit – although it is more difficult to obtain and more expensive once you get it, especially on short-term . Your existing credit lines are therefore extremely valuable, so save them and use them if you can.
If your card issuer threatens to close your account or raise your interest rate, call him and explain the situation. Suppose you paid your bills on time and that you continue to do so. Negotiate to maintain your current credit limit and your current interest rate. In many cases, credit issuers are happy to offer you credit as long as you make your payments on time.
2. Use secure credit cards
Many banks and credit card issuers have access to the secured credit card game. Although there is a lot of competition between card issuers, there are still many cards that charge very high costs, such as application costs, annual costs and even billing costs. That is why it is crucial to shop around. A secure credit card with low costs can be a valuable asset for rebuilding credit.
Almost everyone, regardless of credit history, can get one. This is because card members must deposit a certain amount with the card issuer, and that becomes security on the credit card. For example, a secured credit card with a limit of $ 200 requires Credit Lender that the cardholder keep $ 200 in a bank account to which he or she has no access until the credit card account is closed. In this way, even if the cardholder defaults on the $ 200 debt, the card issuer does not lose the principal.
Although this is a zero risk proposal for card issuers, it can also come in handy for you. Your payment history is reported, so if you use the security card and pay your debts on time, you build a good credit history that improves your credit score.
3. Consider your local credit union
Not only do credit unions offer lower rates for loans, mortgages and credit cards, but they are also more forgiving of past mistakes and often accept higher-risk applications. This is because credit unions only give credit cards to members. That is why they have a better picture of your cash flow and financial past and can see you as a lower risk applicant than other credit institutions with which you have no bank history.
To take advantage of credit unions, first become a member and get an account and savings account. After a few months, the credit union will probably take Credit Lender more into account with your income and outgoing history with the union than that it considers your Credit score and history with other financial institutions. You may end up paying a higher interest rate because you are still considered a risk applicant, but at least you have access to credit.
4. Stay informed of all other debts and monthly payments
Because late payments are the first to have a negative impact on your credit report, it is crucial that you stay up to date on all debt payments and maintain a consistent positive payment history on all credit lines to improve your score. The longer your payment history, the greater the impact on your credit score and how you repay debts over a sufficiently long period of time, ultimately increases your creditworthiness to what it was before foreclosure.
Although credit scores are improved by making timely payments over a long period, they can be further improved if those payments are made on a variety of debts, such as car loans, credit cards and personal credit lines. It is also important to keep abreast of utility bills and contracts for internet, mobile phone services and gym membership. Although these companies do not report timely payments to consumer credit reporting agencies, they do report late payments, thereby immediately damaging your credit.
5. Wait to apply again for more debt
By following your credit score and waiting for it to reach a satisfactory level again, you can maximize your chances of being approved for a new credit card. Even with a foreclosure that is still listed on your credit report, you can get a credit card if your Credit score is high enough. Although foreclosure is certainly not a good thing, creditors can overlook it when they see other promising signals on a credit report. This is especially the case since 2008 when bankruptcies became fairly common.