Posted on July 2, 2012 @ 2:48 pm Credit Cards & Credit Scores Home Owners
People often ask what they can do to rebuild their credit and get their financial house in order after the foreclosure or short sale is over. But before you start worrying about your credit score – which just gives you the chance to take on more debt – take steps to establish a foundation for a better financial future.
Create a lifestyle in which all of your family’s necessities – rent, utilities, food, cars, insurance, clothes – total no more than 70 percent of your household’s combined take-home pay. The next 10 percent of your pay should go straight to savings so that you can build a cushion to protect your family from any future problems. The remaining 20 percent should go toward paying off your remaining debt, and if you do not have any other debt, put it into savings for large future purchases, such as your next car, home or vacation. Or plow some of it into retirement savings. With all this money in savings, you may be able to avoid, or at least minimize, borrowing in the future and keep all of the interest and finance charges that you
would have paid to the bank.
Once you have your monthly spending under control and a good start on your savings, it will be time to think about your credit score so that you can qualify for the best terms on any future borrowing. Some ways to improve your credit score: keep balances low on credit cards and other “revolving” debt; pay off other debt; keep older accounts open and avoid opening new accounts more than you have to; request a copy of your credit report and correct any errors; and set up payment reminders or automatic-bill-pays so that you do not miss payments accidentally.
About 80 percent of your credit score is based on how much you owe and your payment history, both the on-time part of it and the overall length. If you make your payments on time, pay off as much debt as possible, and don’t close old accounts, your credit score should rise like a phoenix from the ashes. Going through a foreclosure or a short sale is a very difficult process, but many of my clients have moved past it, cleaned up their credit and even taken out another mortgage.
(c)2012 Sun Sentinel (Fort Lauderdale, Fla.). Distributed by McClatchy-Tribune News Service.