Damage Assessment After a Bad Mortgage

You can begin repairing your credit score by paying all bills on time.

You experience damage through negative items on your credit report and a lowered FICO. You cannot do much about correct items – most mortgage problems linger on the credit report for up to seven years. However, you can begin to reverse a lowered credit score sooner. FICO scores range from 300 to 850, with 680 generally serving as the dividing line between good and not-so-good credit. A negative mortgage event can drop a good FICO score 150 points or more; paradoxically, low scores suffer less. Lower scores also have faster recover times. For example, if you had a 680 score, you might fully repair a short sale – when your lender agrees to lose money by letting you sell your house for less than you owe – in about three years. In contrast, a score of 720 might require a seven-year recovery period. By taking positive actions, you can start the healing process sooner.

Fixing Errors on Your Credit Report

Look for mistakes on your credit reports, like payments incorrectly labeled as late or missed, as well as charges you don’t recognize. Financial adviser Frank Porschinger says, “The three major credit bureaus provide you with free copies of your credit reports – study them carefully.” To fix an error, contact the credit bureau directly, identify and discuss the error and ask for correction. Use certified mail with return receipt requested to send documents that support your claims. Also, communicate with the creditor in question and send them the same information. Expect action from the credit bureau within 30 days, although it might take up to three months to fix problems with the creditor.

Manage Existing Bills to Rebuild Credit

People who pay their bills on time without fail will stand the best chance of improving their scores. Porschinger points out, “You can build up your credit score by paying your bills on time. You might be able to set up an automatic bank draft arrangement with your utility providers and others allowing them to debit your checking account every month for the amounts due.” You can use your personal finance software to set reminders of when your bills are due and pay them automatically. Clean up any past due payments right away. Don’t attempt to “pay off” debts by shuffling them back and forth from one credit card to another just to delay payment – instead, consolidate credit card debt on the lowest-interest card. Don’t be too quick to close out your less-used credit cards – having fewer open account may actually lower your score. Conversely, don’t open a bunch of new accounts, since this too can lower your score.

Re-establish Credit After Foreclosure

If you have no credit cards, try to qualify for at least one. If you can’t get a normal card, then a lot of companies offer prepaid cards that you refill by adding funds every month. You can also try to obtain a secured credit card that requires you to maintain a minimum deposit to offset the risk of default. If you repeatedly get turned down for this type of card, then stop trying after the second or third try, because applying too many times can also hurt your credit. Once you have a card, it’s time to start “card-grinding,” which means using it minimally to pay for normal, daily stuff, then repaying the full balance during the same month that the debt was incurred, before interest accrues.