How Much Will My Credit Score Drop with A Short Sale on My Home

How Will My Credit Be Affected After A Short Sale

A FICO score is a how our credit worthiness is measured. The FICO score takes into account the amount of debt one carries as any time, how long a person has been using credit to make purchases, and payment history. The FICO score is used by banks to determine if we will be granted credit. The most stringent of all forms of credit are mortgage loans and while the credit score look good overall the banks will look at payment history to determine if they will lend money. And again mortgage defaults and late payments are not good.

FICO scores range between 350 and 850 and according to Fair Isaac Corporation a score of “650” is considered fair and “750” or higher is considered excellent. It is not necessarily whether you have a foreclosure or short sale on your credit that is harmful, it is the late payments that will bring your score down.

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does a short sale or foreclosure. Here is a breakdown of how your FICO score is affected by late payments:

  • 30 days late: 40 to 110 points
  • 90 days late: 70 to 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 to 160
  • Bankruptcy: 130 to 240
  • Foreclosure or Deed-in-Lieu of Foreclosure
    Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 380.
  • Short Sale
    The effect of a short sale (providing the sellers are more than 59 days late) on a seller’s credit report is identical to that of a foreclosure and can result in a loss of 200 to 300 points. If your score prior to a Short Sale was 780, your credit could drop to 480. Getting that score back up requires making payments on time, and not over extending your credit limit-not maxing out your credit cards. Only using a portion of credit available to you is apparently a key factor.

The range of points is based on Fair Isaac’s proprietary scoring algorithm.

Some people that I work with told me that their scores dropped to the high 500’s after a short sale, but then within months was back up to the high 600’s and low 700’s.

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