How Short Sales and Foreclosures Impact Credit Scores


Today’s Guest Blog Courtesy of Kevin Kust with Veracity Credit Repair Service.

  • Starting Score Rule: Better the score, bigger the hit with ALL delinquencies – As years pass, less effect (example: If the starting score is a 750 a foreclosure will hurt dramatically, probably from 200-250 pts.  If the starting score is a 575 a foreclosure would only drop the score 75- 125.  Make sense?)
  • Credit Profile: The impact of any delinquency on a credit report will always depend on what remaining positive credit/trade lines are there to counter balance the recent derogatory.  (Example: a late payment could hurt one consumer by 100 points, but another by only 20 based off of supporting credit)

Georgia Foreclosure – (150-250pt. average)
•    Fannie Mae requires a Foreclosures 5 year “seasoning”
•    High Outstanding Balance
•    Reported as the most severe delinquency / Repo
•    FHA – 3 years until you can buy again

Georgia Short Sale – (75-125pt. Average)
•    Viewed as a charge off – late payments leading up to the short sales is what hurts not the “short sale” itself.
•    Typically closed out with a $0 balance
•    Fannie Mae requires a Short Sale 2 year “seasoning”
•    If no lates, scoring models are not impacted by notes “settled for less” – only lenders acknowledge
•    FHA treats a Short Sale like a foreclosure – 3 years

Biggest factor: Fannie Mae Guidelines – Lenders will qualify a consumer with a short sale (2yrs) & foreclosure (5yrs).  FHA Guidelines – (3 yrs) for both.

In summary, no one can gauge the EXACT impact a short sale or foreclosure will impact one’s credit as it depends on the state regulations and the specifics of the consumer’s credit profile.  More often than not, the short sale is always the best route to take if an option.



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