By Katie L. Reim
Special to The Sun
STILLWATER —
Foreclosure causes a dramatic drop in your credit score and makes it extremely difficult to get approve for future credit.
Learning how to rebuild credit after foreclosure is one of the most important lessons to learn after this experience.
Eileen St. Pierre, Oklahoma State University Cooperative Extension personal finance specialist, said rebuilding credit is all about being patient and doing the right things every day for a period of time.
“You need to be disciplined. Doing things correctly and consistently can boost your credit score,” St. Pierre said. “The first step is getting your financial affairs back in order. For many, the reason a foreclosure happened in the first place was that their financial affairs weren’t in good shape at the start.”
Get rid of unnecessary payments so you do not take on too much debt or have payments that are too high to afford.
St. Pierre said if this means getting rid of cable television, a high-dollar cell phone plan or even selling your car, do it. It may hurt a little bit, but this will make necessary monthly bills affordable. If these changes are not made, you could find yourself in the same situation again.
“Once your finances are in order, get on a schedule and make your payments on time every month,” she said. “This step is going to make the biggest difference in improving your credit score. On-time payments make up 35 percent of your credit score.”
St. Pierre said that carrying a balance on too many credit cards reflects negatively on your credit score. Credit bureaus like to see less than 30 percent of your maximum limit used up at any given time.
“It’s important not to max out credit cards and carry balances on them. Pay down balances a little at a time and this will make a big difference. Choose the credit card with the lowest interest rate to carry the balance. Use higher interest rate credit cards like debit cards, paying off the balance in full each month,” she said. “In today’s economic environment, if you don’t use your credit it will dry up. Just remember to use it wisely. You still need to maintain credit capacity for the future.”
