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How short sales and foreclosures impact your credit score

As the number of home foreclosures and short sales continue to dominate the housing market, it is important for foreclosure homeowners and short sale sellers to understand the impact of their decisions on their credit scores. �

In a May 2, 2011 article in the Baltimore Sun by Eileen Ambrose, an interview with FICO scores director Joanne Gaskin, discusses the potential hazards on credit scores.

While many argue that a short sale impacts credit scores less than a foreclosure or deed-in-lieu of foreclosure, Ms. Gaskin states that “[B]oth are considered a default.� There is little difference in impact.” �

However, it is possible for a short sale to have less impact depending on how the lender reports the short sale to the respective credit bureaus.� If the short sale lender does not include the amount of shortage from the sale, the homeowners FICO score would be approximately 35 points higher than if the homeowner underwent a foreclosure.

Another myth that Ms. Gaskin addresses is that being 30 days late on a mortgage payment will not affect a credit score as much as being 90 days late.� This is untrue because once you are late, the damage to your credit score has been done.� “The first 30 days late makes a significant impact and it takes a good deal of time to repair that credit,” according to Ms. Gaskin.

Below is a chart for every homeowner to consider when making a tough decision between a short sale and foreclosure and the impact on their credit score. �

** Please note, that before making any decisions, it is important to speak with a financial advisor to determine the true impact on you personally, as the information below is general in nature and may not reflect your specific situation. **

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Starting FICO Score (range 300-850)

Type of Delinquency/Default

Impact on Credit Score

Length of Time for Credit Score to Recover

680 (low)

30 days late on mortgage

Decrease 60-80 points

9 months

 

90 days late on mortgage

Decrease 60-80 points

9 months

 

Short Sale (no balance shortfall reported)

Decrease 50-70 points

3 years

 

Short Sale (balance shortfall reported)

Decrease 85-105 points

3 years

 

Foreclosure

Decrease 85-105 points

3 years

 

 

 

 

720 (good, but not ideal)

30 days late on mortgage

Decrease 90-110 points

2-1/2 years

 

90 days late on mortgage

Decrease 110-130 points

3 years

 

Short Sale (no balance shortfall reported)

Decrease 95-115 points

7 years

 

Short Sale (balance shortfall reported)

Decrease 130-150 points

7 years

 

Foreclosure

Decrease 130-150 points

7 years

 

 

 

 

780 (prime)

30 days late on mortgage

Decrease 90-110 points

3 years

 

90 days late on mortgage

Decrease 110-130 points

7 years

 

Short Sale (no balance shortfall reported)

Decrease 105-125 points

7 years

 

Short Sale (balance shortfall reported)

Decrease 140-160 points

7 years

 

Foreclosure

Decrease 140-160 points

7 years

 

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