Here’s an article I found regarding the effects of delinquencies, Short Sales and Foreclosures on our credit. The article was written well so I am just passing it on to you. I hope you find it of value.
Here’s what we already knew:delinquencies are bad, severe delinquencies are usually worse, and recent and frequent delinquencies are the worst. As a result of study results, we also now know the following:
For someone with a FICO score of 680…
A 30-day delinquency and a 90-day delinquency have the SAME score impact.
Both of these events will turn the 680 into a score somewhere between 600-620.
A short sale (settlement), with a deficiency balance, will have the SAME
score impact as a foreclosure. The events will turn a 680 into a score
somewhere between 575-595.
A bankruptcy is the worst thing that can happen to your FICO scores. It will
turn a 680 into a score somewhere between 530-550.
The amount of time for your score to fully recover back to a 680 is 9 months
for a 30-day or 90-day delinquency, but it takes much longer to recover from
anything worse. Short sales, settlements, and foreclosures all take three years
to fully recover. A bankruptcy will take you five years to recover.
For someone with a FICO score of 780…
A 30-day delinquency and a 90-day delinquency have a different score impact.
The 30-day late turns the 780 into a score somewhere between 670-690. A 90-day delinquency will turn the 780 into a 650-670.
A short sale (settlement), with a deficiency balance, will again have the
SAME score impact as a foreclosure. The events will turn a 780 into a score
somewhere between 620-640.
The amount of time for your score to fully recover back to a 780 is much
longer than the amount of time for your 680 to recover. It takes three years to
recover from a 30-day delinquency and seven years to recover from a 90-day
delinquency, a short sale, or a foreclosure. It will take you seven to 10 years
to recover from a bankruptcy.
What I found to be especially important is the fact that a payment that’s
even just one cycle past due (a 30-day delinquency) has a profound negative
impact on your scores. This is especially problematic for consumers who have
chosen to be delinquent on their mortgages in an attempt to get help under the
Making Home Affordable plans.
“Consumers may be told in some cases that they have to go late before they
can get any help under one of the HAMP (Home Affordable Modification Program) programs,” says Joanne Gaskin, Director of
FICO’s Global Scoring Unit. “It’s important for them to understand that even a
30-day late can be very damaging.”
This study also seems to finally put to bed the ongoing myth that short
sales are better for your credit scores than foreclosures. “There seems to be a
perceived view that a short sale is going to be significantly different to your
FICO score than a foreclosure”, Gaskin says. “While there’s a minor difference,
it’s not significant.”