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Homeowner101's Blog

By Homeowner101 | Real Estate Pro in Scottsdale, AZ

Managing Underwater Credit Problems After a Short Sale or Foreclosure

If you have an underwater mortgage and are considering a short sale or foreclosure, you'll need to think about the affect that either action could have on your credit. Both will cause your credit score to fall (though the impact of a short sale on credit won't be quite as negative as a foreclosure), and there's not really anything you can do to prevent that. However, there are steps you can take to manage your underwater credit problems and repair your credit after a foreclosure.

Keep your current credit accounts open. Part of your credit score is based on the total amount of credit available to you. Since your credit score has already taken a hit, now isn't the time to close existing accounts, since that will ding your credit even more.

Pay your bills on time. While you don't want to close any of your accounts, you also don't want to rack up lots of new debt. Paying your bills on time will show that you know how to manage money and can help you improve your credit after a foreclosure or short sale.

Pay off other debt. If you have debt other than your underwater mortgage (such as credit card debt or student loans) you should continue to make payments. Carrying a lot of debt can negatively affect your credit score, so you'll want to work to pay off those obligations as quickly as possible. 

Evaluate your financial habits. As you work to repair your credit after a foreclosure, you should take some time to evaluate your financial habits and behavior. Many people end up selling homes in short sales or losing them to foreclosure through no fault of their own¾they simply bought in the wrong place at the wrong time. But in some cases, there may have been spending patterns or other issues that contributed to your underwater credit problems. As you move forward, be sure to evaluate your own behavior so that you can avoid falling into a similar situation in the future.   

Check your credit report. You're entitled to one free credit report every 12 months from each of the three major credit reporting agencies (Experian, Equifax and TransUnion). Your free report won't tell you your credit score, but reviewing the report will help you spot any inaccuracies and get them corrected as soon as possible. An inaccurate item on your credit report could lower your credit score.

Recovering from the effect of foreclosure or short sale on credit will take some time. But with a little effort, you can boost your credit score, which will make it easier to obtain loans¾including another mortgage loan¾at some point in the future. One step you can take to manage the impact of a short sale or foreclosure on your credit score is to take advantage of Homeowner 101's Underwater Homeowner Assessment and Action Plan. Our assessment will help you understand your underwater mortgage and their consequences, so that you can get your financial life back on track as quickly as possible.

Comments

By Irina Karan,  Fri May 4 2012, 17:31
Good post!
By Irina Karan,  Fri May 4 2012, 17:32
There are some pretty great books on this subject too - hope you can continue on this subject...

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