Rebuilding Your Credit After Foreclosure

The American Dream of owning a home can become a nightmare when foreclosure occurs. On a personal and emotional level, it can be devastating. Credit wise, it can be even worse. Foreclosure can take a toll on your score even before the process begins. When it's over, you may lose 200 points or more. There are no quick fixes, but there are steps you can take to rebuild your credit in the aftermath.

Track your credit score and history. You're entitled to a free credit report once a year. You'll want to be extra diligent about fixing errors after a foreclosure ? enough damage has been done, you don't want inaccuracies affecting your credit any further.

Continue to pay your other bills on time. The FICO scoring system places the greatest weight on payment history. Keeping your bills stable shows you're recovering from whatever struggles led to foreclosure, and adds points to your score. If job loss led to your defaultment, securing a new job - and staying with it for a number of years - allows you to show your ability to maintain a source of income.

Keep up with your mortgage. After the foreclosure process, your mortgage balance should be zero. If the foreclosure sale didn't cover all expenses, debt forgiveness or a deficiency judgment can address the left over balance. In the case of a judgment, the lender may be willing to settle for less than what is owed.

Open a line of credit. Sign up for a credit card, preferably a secured line linked to a checking or savings account. This will establish a clear payment history. Do a little homework to find the best rates.

Apply to the right mortgage program. There's a "probationary period" you'll have to wait before applying for another mortgage, anywhere from 3-7 years depending on the state and lender. Any mortgage applications before then will likely result in rejection, or interest rates so high it isn't worth it. Once the probation ends you can pursue another mortgage without the anchor of foreclosure on your record. As with credit cards, you'll want to research the best programs for your financial picture.

Use the lessons and missteps to become a wiser money manager. As someone who has gone through the highest experience, acquiring your own home, and one of the lowest, losing that home, you've developed a valuable knowledge base on what not to do next time around. Whether or not you plan on seeking another mortgage down the line, stay mindful of the mistakes that put you in that situation.