BY: TIM GRENDA, J.D.
If you are among the millions of Americans who have lost their homes to foreclosure, you’re probably wondering what you can do to improve your dire financial situation. Foreclosure is one of the most damaging things that can happen to your credit rating, similar to filing for bankruptcy.
However, cheer up. There are some steps you can take to improve your financial standing after foreclosure and better your odds of finding a new home to rent, a job, and other necessities.
First, the bad news. A foreclosure will devastate your credit rating, there’s no sugar-coating it. It can stay on your credit report for up to seven years and will appear under the “Public Information” section of the report alongside any other legal judgments which have been entered against you.
A foreclosure on your credit report will cause your FICO score to drop anywhere from 250 to 300 points, depending on other factors affecting your credit score. That’s a major hit that will seriously impair your ability to get loans, unsecured credit cards, and other types of financing as long as the foreclosure appears on your credit report.
Also, since many prospective employers and landlords will run a full background check before hiring you or renting you a home or apartment, a foreclosure could seriously impact your ability to find a job or a place to live. For obvious reasons, having a foreclosure in your recent past could give a landlord concerns about your ability to pay the rent on time. Prospective employers may wonder if you are reliable and responsible.
It’s probably worse if you are trying to rent an apartment in a large complex owned by a company, which is more likely to have strict rental guidelines. You’ll have a better shot if you focus on smaller apartment complexes, townhouses, and buildings owned by a single landlord, who may not have the same strict rules.
Likewise, smaller employers may be more likely to cut you a break and work with you despite your foreclosure past compared to larger corporations, which may be unwilling to take a chance on you.
Now, the good news. There are things you can do to repair your credit and improve your financial standing during the post-foreclosure period.
First, you should get a copy of your credit report and carefully inspect it to make sure it is accurate. If there are inaccurate entries on the report affecting your score, you should seek to have them removed. The Fair Credit Reporting Act establishes guidelines that the three credit-reporting companies (Equifax, Experian and TransUnion) must follow.
Next, you should obtain a secured credit card from a major bank. A secured credit card is like a debit card and is linked to a checking or savings account. Your credit card bill is deducted from that account, so the card is secured by your own money.
With a foreclosure on your record, you will have a hard time getting approved for a traditional unsecured credit card. However, a secured credit card will be just as good in helping you get back on solid financial footing. It’s a safer way to reestablish your good credit and show banks that you can be trusted.
Following these simple steps, paying your bills on time, and living within your financial means following a foreclosure will go a long way toward improving your long-term financial well-being.
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