How to Improve Your Credit Score After a Foreclosure

Quick Answer

To improve your credit score after a foreclosure, take time to reflect and learn from the experience. Then focus on concrete steps: Paying your bills on time, budgeting, using a secured credit card and keeping your balances low can all help you restore your credit.

A man checking his credit after a foreclosure, looking stressed.

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Losing your home to foreclosure is devastating emotionally, and it also does major damage to your credit standing. A foreclosure is a major negative event in your credit history, with deep, long-lasting adverse consequences for your credit scores.

A foreclosure entry remains on your credit reports for seven years, dating from the first missed payment that led up to foreclosure. Its presence on your credit reports will hurt your credit scores and make it more difficult to qualify for loans or credit cards.

Rebuilding your credit standing after a foreclosure can be challenging, but taking the following steps can help restore your status as a creditworthy borrower over time. Here are some suggestions for restoring your credit in the wake of foreclosure.

1. Identify the Cause of Your Foreclosure

Learn from this difficult experience: Make an honest assessment of the events and decisions that led to the foreclosure. Accept that some factors may have been beyond your control, but also think about your responses to them. Consider how your choices might have contributed to the foreclosure and what you might do differently next time. Think through what kinds of information you wish you'd had and what kinds of support you could have used—and where you might have gone to get them. The point isn't to beat yourself up, but to plan today to avoid repeating mistakes in the future.

2. Pay Your Bills on Time

Foreclosure typically occurs after at least 120 days have passed without you making a scheduled mortgage payment, but the process begins with a single missed payment. To avoid repeating that misstep, and to begin rebuilding credit damaged by foreclosure, make it a priority to always pay your bills on time going forward. Payment history is the single most important factor used to calculate credit scores, so each month that passes without a late payment helps your credit scores improve.

3. Make a Budget and Stick to It

Making a household budget may sound like hard labor, but when it's done right it can lighten your financial load. Making deliberate choices about where your money goes is much less burdensome than wondering why there isn't enough left to cover bills at the end of the month. Taking the time to work up a realistic budget—perhaps with the help of a certified credit counselor (see below) can help put you on a road to credit recovery.

4. Get a Secured Credit Card

A foreclosure on your credit report may make it difficult to qualify for traditional loans and credit cards, especially in the first year or two after the event. If that's the case for you, taking out a secured credit card can be a good tactic for jump-starting a positive payment history. With a secured card, you typically put down a deposit of a couple hundred dollars, and that amount usually becomes the spending limit on the card. Using the card regularly and making timely payments each month adds positive payment information to your credit reports and promotes credit score improvement.

5. Keep a Low Credit Utilization Ratio

If you take out a secured credit card or have other revolving credit accounts, take care to avoid running up high balances. Your credit utilization rate, the outstanding balance on each card expressed as a percentage of the card's borrowing limit, is a major influence on credit scores. Maintaining utilization rates under about 30% can prevent harm to your credit scores. People with excellent credit scores typically keep their utilization rates at or below 10%.

6. Seek Professional Advice

In the aftermath of foreclosure (or, ideally, before you reach such a crisis point), meeting with a certified credit counselor can help you make sense of your finances and begin the recovery process. Credit counselors (which should not be confused with for-profit credit repair companies) are advisors who can help you develop a workable budget, prioritize your outstanding debts and make a plan for catching up with them, and even intercede with creditors on your behalf to arrange repayment through a debt management plan.

7. Check Your Credit Scores and Credit Reports Regularly

Foreclosure, and the series of missed mortgage payments that lead up to it, can do severe damage to your credit scores. As you work to rebuild your credit in the wake of these events, check your credit scores and keep tabs on your credit reports to help you chart your progress.

8. Be Patient

Credit improvement may be gradual, especially in the first months and years after foreclosure appears on your credit reports. But with time and persistence, your rate of recovery may pick up steam. The negative impact of late payments will diminish over time and, provided you keep up with payments and maintain low balances on your credit accounts, your positive credit habits will eventually outshine past missteps.

The Bottom Line

Losing your home in a foreclosure and the ensuing damage to your credit can feel crushing, but don't lose hope. With time and patience, you can recover and move on. If there comes a time when you're ready to consider seeking another mortgage, you can check your FICO® Score from Experian to get an idea of your qualifications, and then shop around for the best deal you can get.