How to rebuild Your Credit

If you’ve been through a bankruptcy or foreclosure, it’s possible for you to own a home again, just not for a while. According to bankrate.com, the standard wait time after filing a Chapter 7 bankruptcy is four years to qualify for a conventional mortgage and two years for an FHA mortgage. After a foreclosure, you will typically have to wait up to seven years to obtain a new mortgage. The time it takes to get a loan again can vary whether you go through a foreclosure or a short sale. There are also differences in time depending on the type of loan you had whether it was convention, FHA, Fannie Mae or Freddie Mac. See loan time frames after foreclosure.

During that time, borrowers who want to own a home again have to methodically and strategically rebuild their credit to reestablish themselves as trustworthy borrowers. Here are the most important steps you can take to make yourself attractive again to mortgage companies and other lending institutions:

1. Use credit cards responsibly. Financial experts at msn.com suggest you carry a balance at or below 30 percent of your credit limit; the closer you get to maxing out, the less responsible you are perceived to be. If you don’t have a credit card, apply for a high-interest or secured credit card earmarked for those with compromised credit. A secured credit card requires applicants open a savings account to guarantee the credit limit, and it’s a good choice for consumers who would be turned down for a regular credit card. Consumers should resolve to pay a credit card bill in full every month, or at least always make more than the required minimum payment. Minimum payments make borrowers look like theyre living on the financial edge.

2. Get a loan. Take out an installment loan, which is paid for with a fixed monthly amount over an established repayment period. Purchasing a car is ideal for this type of loan, and dealerships such as DriveTime do finance people with credit problems. Successful management of an installment loan will help a borrowers credit-worthiness tremendously.

3. Be on time. Maintain a flawless on-time payment record. Even if a borrowers past includes less-than-perfect payment performance, he or she now has the opportunity to become a borrower with an enviable track record. Payment history makes up 35 percent of a borrowers credit score, according to experts at msn.com. Online banking makes it easy to arrange regular payments for monthly bills so borrowers never overlook another payment. Aim for an unblemished on-time payment record by scheduling every payment to be delivered at least one business day before its due. Many lending institutions will charge a late fee if a credit card payment is not received by 10 a.m. on the due date.

4. Practice self-discipline. Consumers are advised not to close any open credit card accounts, because that can result in the appearance of using a larger percentage of available credit. This means practicing discipline: Limit yourself to using one account only, and not using available credit unless its part of a larger strategy to rehabilitate a credit report. Although closing accounts can hurt a borrowers credit profile, not using open accounts has no impact on a credit report, msn.com reported. Keep spending to a minimum and don’t be tempted into buying anything you don’t absolutely need.

5. Increase your credit score. One of the most important things you can do after bankruptcy, foreclosure, or short sale is to work on rebuilding your credit score.  Just to recap, there are a number of things you can do to increase a credit score. Some of the simplest things you can do are pay off all your existing debt, pay all your bills on time every month, don’t close your credit cards and do not open a bunch of new credit cards. Simple but effect credit advice!

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