How to Fix Credit After a Foreclosure

A foreclosure can have a devastating effect on your credit history and score. It is believed that it will drop your score by anywhere from 150 to 175 points. If you add in prior late payments to the foreclosure, the impact can be closer to 280 points. This mark will remain on your credit history for seven years. During that time it can be difficult to qualify for new loans or a new credit card. However, there are action steps you can take to help repair your credit score after a foreclosure.

Step 1

Order a copy of your credit report. To see what other debts you may have that may be bringing down your score, you will need a current copy of your credit report. You are entitled to one free report every calendar year from the three main credit bureaus: Equifax, Experian and TransUnion. If you have already taken advantage of that offer, you will need to purchase a new copy at a nominal fee from each of the credit bureaus.

Step 2

Pay off any outstanding debts. If you find any old debts, old collections or judgments, take care of these first. Keep records of your payments and request that once the debt has been paid in full that the creditor remove the entry from your report. If they do not, you can file a dispute with the credit bureau and provide the agency with your proof of payment. The company will investigate your claim and remove the entry for you. This typically takes up to 90 days.

Step 3

Apply for a secured credit card. After old debts are removed from your report, you must rebuild your credit history. A secured credit card is a line of credit that you secure with your own money. For example, a secured card with a $250 limit would require you to deposit $250 before you would be able to use the card. You can decide to deposit as much as you would like to on one of these cards to increase your credit limit. After a period of six months to one year, you should be able to apply for an unsecured credit card. An unsecured card does not require you to deposit your own money to open the account. Typically, a starting credit limit on an unsecured card is $250 to $500.

Step 4

Lower your card balances. The debt ratio you carry will have a big impact on your credit score. Aim to have at least 50 percent of each credit line available on all of your accounts. This shows creditors making inquiries on your report that you know how to manage your credit responsibly and that you do not max out your credit cards.

Step 5

Keep monitoring your credit report. Keep checking for any errors that may appear and if they do, file a dispute with the credit bureau immediately. It may take up to a year or more, but with diligence you can repair your credit and recover from a foreclosure.