Reviving Your Credit Score

Foreclosure can be the scarlet F, branding your credit report and docking up to 200 points off your credit score automatically.

But if you follow some simple tips, you can reestablish your credit and restore it to its former glory in a few short years. Here’s how:

Start slow. “What happens to people who’ve been in financial distress is that they just go in and do it [apply for more credit],” said Saundra Davis, a financial planner and management consultant in San Francisco. “You want to feel better, and it feels good to be able to walk in and sign your name on a new credit card. It’s an emotional boost, but you can’t let your emotions run away with you.” If you do, you may be digging yourself into a worse credit score.

Ten percent of your credit score is based on credit inquiries. Every time a company requests information on your credit, it dings your credit score. And if those credit companies reject your application, it’s even worse.

Go back to basics. Thirty-five percent of your credit score is based on how well you pay your remaining debts. And if you’ve been through foreclosure, it’s likely that you’re delinquent on other debts as well, says consultant Lathea Morris, co-founder of New Jersey-based The Credit Alternative.

So spend some time post-foreclosure getting your financial house in order.

–Track spending for 30 days.
–Figure out how much money you actually bring in.
–Save up to six months of income for an emergency fund. If you get behind, it won’t affect your ability to pay bills on time–and it won’t hurt your credit score.

“Once you build the family expenses around what’s actually coming into the house, you can focus on rebuilding your credit,” she said.

Avoid scams. As tempting as they are, steer clear of rent-to-own outfits, Davis says. “Rent-to-own can sound like a good deal, but it’s just as bad as going to a payday lender and will probably land you in greater debt,” she says. “A lot of people who’ve been through foreclosure feel like they have to take whatever they can get. But just because you’ve been through foreclosure doesn’t mean you shouldn’t look for the best interest rates. Think about the true cost of what you’re paying for those things you get from a rent-to-own place.”