Start repairing your bad credit rating now

Reporting from Washington —  It is never too soon for folks who have given up their homes to start pointing to the day when they will once again decide to take the plunge.

Whether you were able to persuade your lender to accept a payoff for less than what you owed and dump your albatross in a short sale or lost everything to foreclosure, if you start rebuilding your credit now, you may be able to buy another place in as little as two years.

“We live in a credit-dominated society, making it especially critical for those with tarnished credit reports to begin the rebuilding process as soon as possible,” says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Silver Spring, Md.

It’s likely that if you’ve been tagged by a short sale, foreclosure or bankruptcy, the rest of your credit has gone to seed as well. So follow these tried-and-true tips:

* Review your credit report. You can’t know where you are going until you know where you are. So get a free report at www.annualcreditreport.com, and look it over for accuracy.

First, make sure that the information in your file is about you and only you, not someone who has a similar name or a similar Social Security number. Next, look for items about you that are simply erroneous.

If you find mistakes, dispute them. If you discover old debts that haven’t been paid off, satisfy them as soon as you can.

* Beware credit-repair scams. By all means, don’t pay someone to wipe away the negative items in your file. If they don’t follow through, the damaging items will reappear in two or three months.

* Check the status of a short sale. If your mortgage lender has accepted a payoff for less than what you owed, make sure that the account reflects a zero balance rather than the difference between the outstanding balance and the sales price.

Don’t assume that your short sale carries no further obligations. Some lenders are filing deficiency judgments, while others are selling the bad debts to investors who then go after borrowers. Also, Uncle Sam can tax the difference as income.

If you are responsible for the remaining balance, make arrangements to repay, follow your repayment plan and make sure the lender carries your account as current.

* Be aware of the effect of foreclosures, bankruptcies and short sales. Bankruptcies tend to have a greater effect on a credit score because they typically involve more than one account, whereas a foreclosure involves just your mortgage, according to Craig Watts, public affairs director at Fair Isaac Corp., the company that devises many of the credit-score formulas used by most lenders. But either way, there’s nothing you can do about these extremely weighty black marks against your credit except ride them out.

Bankruptcies and foreclosures remain on your credit report for seven years (10 years for a Chapter 7 bankruptcy). But as these items age, Watts says, they have less and less of an effect.

Just a few years ago, underwriting rules were so loose that you could buy a house just 24 months after filing for bankruptcy. But now, according to Ginny Ferguson of Heritage Valley Mortgage in Pleasanton, Calif., you have to wait five years after the bankruptcy is dissolved, not just filed -- and seven years if you’ve filed for bankruptcy multiple times.

Lenders tend to look more kindly on applicants who have unloaded homes via a short sale, Ferguson says. In fact, she says, you may be able to get another mortgage in as little as 24 months “if you truly have extraordinary circumstances.”

* Maintain checking and savings accounts. Your future mortgage lender will probably want to see two or three months of bank statements.

* Stay current on credit cards.

* Apply for new cards. Having two or three revolving accounts, typically credit cards and an installment, fixed-payment loan (say, for a car), can improve your score, as long as you are current.

Also consider a secured credit card, one backed by a deposit you made with the institution issuing the card. To research the various yardsticks, go to www.creditcards.com or www.bankrate.com.

Don’t apply for too much credit at one time. Too many credit inquiries can have a negative effect on your score.

* Take out a small loan. A personal loan from a bank or credit union can serve to reestablish your credit.

* Make sure that your accounts are reported. After going through all this trouble, it would be a shame if your lenders did not report your on-time payment status.

lsichelman@aol.com

Distributed by United Feature Syndicate.