If losing your home wasn’t already bad enough, did you know that just like bankruptcy, a foreclosure stays on the record over 7 years as well?
To top that off foreclosure rates have skyrocketed in recent years due to increased mortgaged payments and negative equity.
But does this mean you’ll never be a homeowner again? Will you ever get a loan? Is your credit status now dead and buried? NO. With the right moves, you can get it back up with results varying from 2-3 months to a year. Here’s what you need to do.
Review the Foreclosure
The first and foremost step towards rebuilding begins by assessing the current situation. Getting to the root cause of the problem can prevent further damage. Did you choose the wrong mortgage? Did you not manage your budget well enough? Answering these burning questions can be a difference maker.
Write a budget
Has your monthly bank statement ever left you shocked and worried? Wondering how it all drained away so quickly with so many bills yet to be paid? Falling behind on bills and credits is easy and can quickly result in a free fall with mounting interest, late fees etc. and that’s where budgeting can help as it prevents overspending.
So how do you make a budget? In case you’ve not made a budget before here’s what you need to do.
Know your income: This includes your salary and any other freelance, consultation work you etc. you may have taken up.
Calculate your expenses: From your monthly expenditure on necessities like food, rent, electricity, water to luxuries such as air tickets, alcohol, everything needs to be accounted for.
Keep aside saving and loans: Once you know your expenses if need be cut down. Firstly set aside some for loans, mortgages etc. and stash away the remainder as savings, emergency funds etc. so there’s plenty for any upcoming emergency without disrupting monthly expenses.
Let life’s surprises make you happy not give you a heart attack ;).
Get a secured credit card
Whether it’s bankruptcy or foreclosure getting a secured credit card is a whole lot easier as it requires you to make a deposit which determines your credit limit (a win-win situation for both parties). But one of the major challenges will be to find the right issuer.
You’d want to avoid cards that include a high annual or billing fees. This will require some research and advise from your family, friends using similar cards can come in handy.
For starters, a credit of $200 is ideal and with regular payments being reported to Equifax, Experian, and Transunion, your credit score’s going to be on an uptrend again.
Here’s more on secured credit cards
Keep existing credit routes going
If you haven’t yet, you’re very likely to receive a call from your credit card issuers asking for an increase in interest or worse, cancel your account? So what do you do? Give in, give it up? No
In most cases, it’s a mere formality and a good track record will help you negotiate better. Reasoning it out with them and an assurance of timely payments should help keep existing T&C
But your credit card isn’t your license to thrill. If you’re sorted your expenses, we’re sure you saved up for rent and other important bills. Pay these using the credit card and make timely card payments, it’s one of the easiest solutions in the book for a better credit score.
Remember, after a foreclosure your chances getting new unsecured cards are little to nothing and keeping existing channels going can be a blessing in disguise.
Keeping up with the bills
Hard to keep up with monthly bills, isn’t it? ‘I’ll just pay that one tomorrow’, how many time do we fall behind on these little bills because ‘that’ tomorrow never came?
Then there are the late fees and with retailers quick to report defaulters and late payments, your credit score is sure to take a plunge for the worst.
And to top it all of, believe it or not, those bills you’ve been ignoring make up for 35% of your credit? Yes, it’s a slow and steady process but one that’s effective and easy to implement. C’mon, paying bills was never easier than in the 21st century.
Credit Unions can be helpful
While functioning of a credit union is very similar to any bank, they more inclined to show leniency (something you could do with) and offer mortgages, credit cards, loans etc. at cheaper rates.
That’s because these benefits are only offered to existing members. Their up close and personal relationship with members means they have a good idea about your financial history and thus are likely to see you as less of a debt burden.
And if you’ve got cash leftover at the end of the fiscal year you could even score some. If you’re an esteemed university alumnus or professional you’re likely already part of such a union but if not, here’s what you can do.
Get a checking or savings account before signing up. Once done, be patient and build your reputation with the union by maintaining a good salary and outgoing history. With time, your FICO score will be less bothering with your union history being a priority for a loan, mortgage etc.
Other Guides: How to Repair Credit Score after Bankruptcy?
Avoid more debt
This goes without saying. After all, you’re looking to better your current situation not worsen it and at a time like this, any more debt will be like a big black dot on your credit report.
Getting your FICO score to about 650-700 with on-time bill payments, secured credit cards etc. will ease the process of getting loans, credit cards etc. Applying for more credit with a low FICO score will lead to rejections, in turn, worsening your score.
And further impacting it will be the reduced average time of your credit history which makes up for 10-15% of your credit score. Rather than new accounts, we’d recommend adding up to your savings and paying up more on the existing debt.
Get a raise
Well, nothing beats financial trouble like a small income boost plus who doesn’t love a raise right? So whether it means you have to look for a part-time job or work as freelancer, consultant etc. if you’ve got the opportunity, grab it with both hands.
You can also turn your passion for woodworking, chocolate making etc. into a home run business. And maybe, just maybe that tad bit extra effort pays off and business booms turning you into an entrepreneur with a story to tell.
Is it possible to buy a home soon after foreclosure?
No. That’s because a foreclosure means you’ll have to wait for a couple of years or more irrespective of your financial condition to be eligible for a mortgage.
And even if you do become eligible in 2-3 years a low credit score can play spoilsport resulting in you having to pay higher interest and fees. Furthermore, you’ll also be required to pay a 20-25 percent higher downpayment too
The solution? Be patient, wait it out, build your credit score and let foreclosure be a forgone event. Remember the good old saying, ‘Slow and Steady Wins the Race’ :).