DIY Credit Repair Tips-Buy Again After Short Sale/Foreclosure/Bankruptcy

Now that the real estate crisis is largely behind us, let's look at how to improve our credit standing after missed payments, loan modifications, short sales, foreclosures & bankruptcy....and ultimately obtain home financing again.

Click this link to see bank waiting periods after short sale/BK/Foreclosure 

If you are one of the millions of Americans hurt by the economy in the past 6 years you likely need to get your credit back in shape. Right now a buyer with any one of the above mentioned marks on their credit will have difficulty finding a bank willing issue a new mortgage. 

So when CAN you buy again?  Expect a minimum of 24-36 mo waiting period...but you will also need a good FICO score to be considered for a new conventional or FHA loan. Two years may seem like long enough to rebuild credit naturally, but actually by doing nothing your score will not improve much. Because many distressed homeowners stopped making their mortgage payments for 90, 120, 180+ days, they will likely see a MAJOR credit score reduction of 200+ points. (see chart below)

Don't get discouraged if your score is very low. Anyone can rebuild their own credit quite easily....and without paying a credit repair company. (if you do decide to hire a credit repair company, do your research. Find out what specific things they will do for you and decide if you aren't capable of doing these yourself.....and beware of scams saying they can erase bankruptcy or foreclosure from your credit. Remember, no one can legally remove accurate information from your credit report)

I always advise my short sellers to make payments during their short sale process, if they are financially able. By keeping a mortgage current one can expect much less damage to their credit (a past client of mine reported only 25 pt FICO score drop)

Here are a few basic credit repair tips:

   A good score is anywhere from 640 to 750. Any score above 750 could be considered excellent. A score between 600 and 640 is fair and below 600 could be considered poor.

• First, get a free copy of your credit report to see where you stand (your are entitled to one free report/year). Go to AnnualCreditReport.com (beware of sound alike websites that want you to sign up for ongoing monitoring)

•  Late payments are very harmful to credit. Never make another late payment on anything.

• If you have credit cards, pay the balances down so they are no more than 40% of the credit limit: ($1000 limit should be kept under $400). You should only have 2-5 credit cards (too many can hurt your credit). But don't cancel a bunch at once. Cancel the newest ones first. A long steady history with a credit card is a good thing. Verify the accounts you have closed are reported as "closed by consumer" for the best report. Use your credit cards but pay them off every month to build credit. Even if approved, resist allowing cc companies to increase your limit.  Keep your limits "modest". FICO considers the total "available" debt (debt you have access to) when building your score.
• Open a Secured Credit Card or a secured loan. This is a credit card that, for example, is secured with a $300 deposit. These build credit scores very quickly (look for ones that report to credit agencies automatically).
•  Take out a small car loan-rumor has it paying 12 months on-time car payments can yield a HUGE credit score increase of as much as 100 points.
• Become an "authorized user" on a friend or family member's credit card who has excellent credit. This really works.....I was once a user on my father-in-law's Am. Express account and my score grew to over 825 (at age 24).
• Need a quick FICO score boost in less than 10 days? visit: OPT OUT PRESCREEN to "opt out" of those pre-approved credit and insurance offers you receive in the mail. Doing this raises your score 5-25 points.

• This one is the tip that is a bit of work, but can be VERY effective:  There are 3 credit reporting companies, Expirian, TransUnion & Equifax. If there are ANY errors on your report you can request they be removed. Errors are EXTREMELY common.  By law the credit reporting agencies must look into the matter and respond within 30 days or remove the error. Examples of errors:  4 credit inquires from a car dealership when you only authorized one, a late payment on an account that was eventually paid in full but still showing as late, a short sale that was reported as a foreclosure, an account that is not yours, etc.  (attach copies of all supporting documentation)
  I have heard Credit Bureaus will often just clear the error if it is more than 2 years in the past because they are too busy to research it. (don't fire off 20 letters at once or you may be flagged and dismissed as frivolous).                   

SAMPLE LETTERS:

LETTER #1:

Today’s Date

Name of Bureau
Address
City, State, Zip Code

To Whom It May Concern:

I recently obtained a copy of my credit report, which contains inaccurate or outdated information reported by your company.

I request that you investigate the following items and respond to me within 30 days of your receipt of this letter, in accordance with the Fair Credit Reporting Act, 15 USC section 1681i. For your reference, I am enclosing a copy of my recently obtained report and other documentation that supports my request.

*Fill in the appropriate information indicated in parentheses below*

The following account does not belong on my credit report:
(creditor name, account#, reason why the account should be removed)

The following account is described erroneously and needs to be corrected:
(creditor name, account#, description of what is wrong and how it should be corrected)

In the event that your company does not respond to my request within 30 days, I will assume that you are unable to verify the information, which means you must immediately remove or correct the items in question.

Sincerely,

Sign Here

Your Printed Name

LETTER #2

Date

ATT: Consumer Assistance Credit Bureau Address

RE: Credit report #______

Dear ____

On March_______and April__________, I sent you letters requesting items be investigated on my credit report. (See enclosed copies)As of yet I have not received a response from you. Under the Fair Credit Reporting Act you are required to respond within a “reasonable period of time.”

I am sending this letter certified so I will know you did receive it. In this way I will have no option but to pursue my legal rights if I do not receive a response.

Sincerely,

Your signature
Your name printed
Your Address
Your SS#

*There are now banks lending to those with recent Short Sale, Foreclosure and/or Bankrutcy in their credit history (very low FICO scores okay). These loans require extra fees, a higher interest rate and 20% down (can be gifted). At RE Options we specialize in helping homeowners buy again. Many people are surprised to learn they can buy a home TODAY.

Contact us today to learn more about your options.

Thanks for reading this post and good luck with your credit repair!