How to Build Your Credit Score Back Up After Foreclosure or Short Sale?

How to Build Your Credit Score Back Up After Foreclosure or Short Sale?

Credit Score, Foreclosure, Short Sale. Credit Score after Foreclosure or Short Sale. So you’ve foreclosed on a home or had to sell for less than what you owed on the home? You probably think you’re doomed as a consumer moving forward. And while a short sale or foreclosure is never something that you want to have on your credit report, neither is a be-all, end-all when it comes to purchasing power. However, it should go without saying that either a foreclosure or short sale will require consumers to enact some credit repair.

How to Build Your Credit Score After Foreclosure or Short Sale

Credit Score after foreclosure. Just how to you go about rebuilding credit after a short sale or foreclosure? Here’s a closer look:

Rebuilding Credit After Foreclosure/Short Sale

The first thing that you should do after a foreclosure or short sale is put it in the past. Yes, it happened. Yes, it’s unfortunate. Yes, it’s not going to look great on your credit report and it’s going to hurt your credit score. But like we said in the opening, it’s not a be-all, end-all. So put it in the past. It’s over with. While the short sale or foreclosure will stay on your credit report as a negative part of your history, that doesn’t mean that you can’t build positive activity beyond that. The goal for a consumer following a short sale or foreclosure is to build positive activity to make the negative on the credit report look like nothing more than a blip on the radar. Here’s how to do it:

  • Immediately work to start (or continue) at least three positive lines of credit: Whether it’s a secure credit card, personal loan or some other type of account, these lines of credit are all ideal opportunities to build positive activity. Since the FICO score weighs consumer behavior on making on time payments, credit history and credit utilization, you can put the negative of a foreclosure or short sale in the past by building positive activity with at least three accounts. Perhaps you have a healthy account or two opened? Great! Keep up the good work with it.
  • How to build positive credit: Like we hinted at in the last bullet point, the best way to build positive credit is to make on-time payments and keep balances low.

If you follow the two steps above following a foreclosure or short sale, it’s not uncommon to see a significant improvement in your credit score within as little as six months. In fact, it’s not out of the realm of possibility for those with credit scores in the low 500s to see their scores increase into the high 600s or even the 700s after a foreclosure or short sale by building positive activity. Just remember, it’s not a quick fix – it take a little bit of time.

There are three big complaints about the current credit scoring system in the United States – it’s confusing, it’s not always fair and it’s not always as accurate as it pretends to be. And considering that about one-third of all Americans have either poor or bad credit, it’s probably a good bet that a significant number of these individuals are “victims of the system” to some extent. In other words, their credit situation isn’t quite as dire as their FICO score indicates.

But soon this may be changing, thanks to a bill introduced in May by Rep. Maxine Waters dubbed the “Comprehensive Consumer Credit Reporting Reform Act of 2016.” The proposed bill could help a number of Americans improve their credit scores – and they wouldn’t even have to do anything:

What the Proposed Bill Includes

  • Bad credit information (i.e. foreclosures, Chapter 13 bankruptcy) would be removed from credit reports after 4 years (not 7 as it currently stands).
  • Debts that have been paid and settled would be removed 45 days after the date of finalization.
  • Employers would be forbidden to check a would-be employee’s credit report for employment consideration purposes.
  • Disputes wouldn’t be handled so much by the consumer, but by the credit bureaus.
  • Credit reports and credit checks would be able to be accessed complimentary more regularly so individuals could monitor improvements. Presently, consumers are allowed one free credit report check a year.
  • Credit relief would be provided to those that have been victimized by predatory lending.
  • The Consumer Financial Protection Bureau would be in charge of monitoring and developing scoring algorithms and models.

Will it Pass?

While the proposed Comprehensive Consumer Credit Reporting Reform Act of 2016 appears favorable (and practical?), it’s also another pitch in a line of credit reform proposals that have been introduced over the years. And these proposals have done little in the way of moving the legislative needle when it comes to credit scoring.

In fact, this is the second recent credit reform pitch from Waters herself, as her first attempt came in 2014. Last year, Sen. Elizabeth Warren and Rep. Steve Cohen introduced a proposal that would prohibit employers from checking credit scores and reports on job applicants. Both proposals didn’t pass. In fact, the last real notable change in credit reporting may have been way back in 2003 when an amendment to the Fair Credit Reporting Act permitted consumers to receive complimentary annual credit reports. Based on this unfavorable track record, the Waters’ latest proposal may appear to be a long shot, but the Senator is still working to help raise support for it.

Stay tuned to see where – if anywhere – this bill goes, as it could spell some welcome relief for millions of Americans with less than favorable credit scores.

Foreclosure Vs. Short Sale

Foreclosure Vs. Short Sale – News

Foreclosure Vs. Short SaleIf you’ve fallen behind on your mortgage, if your home is currently underwater or if you don’t foresee being able to continue making payments on your home, then two options you may consider are foreclosure or a short sale. While both of these can have a negative effect on your credit score, they both act differently. Here’s a closer look at both options. Foreclosure vs. Short sale is a difficult decision.


Foreclosure occurs when you’ve defaulted on your mortgage loan and the bank reclaims possession of your home.

  • The good: Foreclosure allows you to walk away from your home, which is valuable if your current mortgage is higher than the home’s value.
  • The bad: Foreclosure takes a heavy toll on your credit score and will stay on a credit report for up to 7 years. It’s estimated that a score can be docked from 100 to 150 points after a foreclosure – but that’s not the worst part about it. The worst part is that you may not be eligible to purchase another home or qualify for a loan for at least 2 to 5 years, depending on your state laws.

Short sale

A short sale is an agreement with the bank that you’ll sell your home for less than what you owe on it in the event that you can no longer make payments as-is:

  • The good: You – and not the bank – control the sale. It’s also a more responsible way of walking away from your home and being able to qualify to buy another home immediately, in some circumstances. However, if you’ve fallen behind on payments, it may be at least 3 years before you can qualify for an FHA loan.
  • The bad: Your credit score will still take a hit – from 50 up to 130 points in some cases. And although credit bureaus don’t show “short sale” on a report, it may still identify that you either settled for less or paid in full for less on a report, which can jeopardize future loan opportunities.


If we were to give you a credit tip, it would be to not bite off more than you can chew when it comes to buying a home in the first place, as this reduces the chance of foreclosure and short sale. And unlike other credit repair situations where debt management or financial responsibility can go a long way toward upping your score, foreclosure and short sales can be that warning sign on your credit report for several years, making it very difficult – if not impossible – to get approved for a loan, let alone good interest rates.

For additional information on how to repair your credit, please contact our office at 617-265-7900 or request a free consultation below.

Short Sales or Foreclosure purchase
Buying Foreclosures and Short Sales

Once you’ve finished the credit repair process, the fun part begins: shopping for your new home. During your home purchase hunt, you will come across many properties that are not straight up standard home sales. Some are short sales, others foreclosures, still others, bank-owned homes. All of these can be tempting to hunt for, as they are sometimes sold for less than the price of standard sales. But, there are a few things you should know about each of these categories before you dive in:


This type of property is commonly referred to on real estate sites as a bank owned or Real Estate Owned (REO) property. The original homeowner is not involved in the sale, since the bank owns the property. While foreclosures have been, historically, priced to sell, many regions have seen the prices on these homes rise. In many cases, there is no difference between the prices of a foreclosed home and one being offered by the owner in a standard sale.

The lender/owner in an REO property does not have to make all of the disclosures required in a standard sale. The houses are sold as is, so, ensure that you have a thorough professional inspection before you commit. Many of these homes have issues because of damage done by the former owners.

Short Sales

Short sales involve the owner, the buyer and the lender. These homes are being sold, with the approval of the bank, for less than the previous owner owes on their mortgage. A short sale allows a seller who is upside down on the property a way out without destroying their credit.

The downside of short sales is that they can take a long time to close. The seller and lender must both agree to any offer. If there are multiple lenders, each one needs to approve the sale. You may see some short sales that are advertised as “approved” short sales. These are ones where a previous buyer’s offer was approved, but the deal fell through for some reason. But, even though another offer was approved does not mean that yours will be. If the market has improved, the bank may want a higher price than they would have accepted before.

There can also be some additional costs that must be paid in cash before the sale, such as fees that must be paid off before the title can be transferred. But, if you have the time and the patience, short sales can be worth the headache. Often, these houses will sell for far less than the market value in your area.

While home shopping, it’s important to know what you are getting into in any possible deal. Make sure you are familiar with the seller and bank’s obligations and any possible drawbacks before you get involved. Knowledge can help you protect yourself and get you a more equitable deal on your new home.


For more information on on how to purchase a foreclosure or short sale contact our office today.