Many times I get asked this question: How does a short sale vs foreclosure affect ones credit? It is often a topic of discussion in the short sales monthly meeting my company, Coldwell Banker Brokers of the Valley, facilitates. It was also an area covered thoroughly in the training I just attended by the National Association of Realtors for my attaining their new designation as a short sale specialist, “SFR, Short Sale & Foreclosure Resource“.
So it was of interest when I read this article on the Yahoo Finance blog FICO Reveals How Common Credit Mistakes Affect Scores. Fair Issac Corporation (FICO) has just released some of the top financial missteps that people make regarding their credit and exactly how much each one can impact their credit score. FICO did this to help educate people about their overall credit profile and give them an idea of what kinds of things can negatively impact their credit score.
If your credit score is currently 780:
- Maxed out credit card – 25-40 points
- 30 Day Late Payment – 90-110 points
- Debt Settlement – 105-125 points
- Foreclosure – 140-160 points
- Bankruptcy – 220-240 points
If your credit score is currently 680:
- Maxed out credit card – 10-30 points
- 30 Day Late Payment – 60-80 points
- Debt Settlement – 45-65 points
- Foreclosure – 85-105 points
- Bankruptcy – 130-150 points
From FICO spokesman Craig Watts:
I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble. Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly.
One additional benefit that was discussed in the NAR training, by availing oneself of the short sale to sell his home, generally they can obtain a new federally backed loan in two years vs five years for a foreclosure. Obviously anything to do with either method requires great advice from your Realtor, accountant and tax attorney. It is still quite the mind field even with all the attempts by the federal government to force lenders to make the process faster and easier.