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.

Click beyond the jump for a chart that shows how foreclosure and short sale can impact your credit score.