Foreclosure & Your Credit

What are Credit Scores?

If you're thinking about investing in real estate or buying a new home, you need to have a good credit score in order to get approved for a mortgage loan. In fact, according to the experts, credit matters even more than income. What are credit scores? Also known as FICO scores, named after the Fair Isaac Corporation that developed the scoring formula, credit scores range from 300 to 850 (worst to best scores) and are influenced by your credit history.

Your Credit History

If you have excellent credit or a high credit score, it indicates that you have paid your bills on time, that you don't have late payments or unpaid bills, and that you have not foreclosed or declared bankruptcy. Financially responsible behavior tells creditors and lenders that you are a good candidate for a home loan.

On the other hand, a few simple missteps can land you in hot water and lower your credit score, resulting in higher interest rates and the possibility that you will be refused a mortgage loan not only now but for years to come.

Foreclosure and Your Credit Score

Foreclosure, the process by which a bank repossesses a property a homeowner defaults on the mortgage fees, is that dreaded word that no homeowner wants to hear - and for good reason! Foreclosure is one the most damaging processes in terms of credit scores and can cause your credit rating to plummet by at least 100 points and probably more. Not only will your credit score take a significant hit if the bank repossesses your property, but you won't be eligible to obtain any type of financing for a full year, and the foreclosure will remain on your credit report for a full seven years, limiting your ability to obtain new credit in the interim and to buy another house.

Life After Foreclosure

Sound pretty depressing? Fortunately, despite the bad rap that foreclosures receive in the media and in spite of the predictions of doom and gloom regarding the odds of distressed property owners ever recovering from real estate purgatory, there is indeed life after foreclosure!

In fact, foreclosure does not have to mean the end of your homeownership dreams. There are many proactive steps you can take to restore good credit and improve your credit history - even while the foreclosure remains on your credit report.

To 8 Ways For Repairing Your Credit History

Since your credit score is determined by many factors, there are numerous avenues by which you can begin to repair your credit history, bring up your credit scores, and restore your good financial reputation. Here is what you can do to add positive history to your credit report right away and to speed up the process of qualifying for a home loan in the future:

•- Pay your bills on time

•- Pay credit cards balances in full each month

•- Pay off past due accounts

•- Understand what led to your financial difficulties/foreclosure in order to learn from your mistakes and prevent the same thing from happening again

•- Don't max out your credit cards; reduce your debt load to below the credit limit

•- Maintain a number of different types of credit at the same time - for example, revolving credit (regular credit cards) as well as installment credit (i.e. car loans, student loans).

•- Apply for a secured credit card, wherein you must make a deposit against the account credit limit. A secure credit card protects the lender in case you default on your payments; at the same time, it gives you an opportunity to show off your new-and-improved spending habits and boost your credit rating.

•- Set up a realistic budget and stick to it

Once the credit bureaus and lenders see that you are behaving in a financially responsible manner, your credit scores will slowly begin to climb. Hopefully, in matter of time you will be well on your way to resuming your search for the perfect home and to fulfilling your goal of homeownership.