Millions of American families have emerged from the housing crisis with severely damaged credit. Short sale, foreclosure, delinquency, deed in lieu, mortgage modification and/or bankruptcy can all have significant negative impacts on a family’s credit. In most cases, families will need to wait two to three years before they are again able to qualify for a mortgage.

During this wait period, families will need to reestablish their credit and finances utilizing tools such as credit repair, secured credit cards, alternative credit and budgeting.

Credit repair services such as Lexington Law offer to “legally repair your credit and raise your credit score by removing bad credit.” This generally involves disputing negative entries on your credit report with the expectation that these items will be reported more favorably or removed altogether. Lexington’s fee is $99.95 to set up, then $49.95 – $89.95 monthly, depending on the service level chosen. There are many similar services and you can even dispute items on your own by obtaining a free credit report and writing letters to creditors disputing what they report. The goal is to increase the credit score to at least 620 – 640, which is the minimum to qualify for FHA financing.

Secured credit cards can be used effectively to increase credit scores. With a secured credit card, you deposit an amount in a bank account and then receive a Visa or Master Card with a credit limit equal to the deposit. For instance, you deposit $200, and then you can use the credit card for up to $200. You cannot withdraw your $200 until you close the account, or your issuer allows your credit card to become unsecured due to improvement in your qualifications.

Obtaining three secured credit cards with modest deposits is typically most effective. Use the cards frequently and pay at least the minimum payment each month but, for best results, do not pay off. Carry a balance and have new charges on each card every month. You are building a track record of responsible usage and regular payments, which reports more positively than non-use or paying off each month. These cards all report to the credit bureaus without distinction between a secured or unsecured credit card. One caution: expect fees to be high relative to unsecured credit cards, as well as typically higher rates of interest, with some even requiring a fee if you make your online payment less than two days before the due date. Nevertheless, secured credit cards can represent a pro-active and cost-effective means to improve your credit score.

Alternative credit such as positive payment histories from landlords, utility providers, cable TV and similar creditors may not show up on a credit report, but can be powerful evidence of families’ restored creditworthiness. Typically, FHA will accept alternative credit in their underwriting.

Crafting a budget and listing every dollar of income in one column and every dollar of expense in another is useful in helping families more easily identify expenses which can be reduced or eliminated. The extra funds may be needed: although down payments on FHA and similar programs are still in the 3 – 5% range, lenders may require larger down payments in the future. However, the steep price declines in many markets may help offset these increases: a 5% down payment on a 2006 $150,000 Florida home equaled $7,500, which equates to a 20% down payment on the same Florida home selling in 2011 for $37,500.

To qualify for a mortgage, families with credit damaged as a result of a short sale or foreclosure from the housing crisis are encouraged to start the rebuilding process early and to remain disciplined in executing their plan. The modest extra effort to make the right choices each day may well be rewarded with a relatively prompt return to homeownership.