Mortgage payments, short sales and your credit score…

Unfortunately, I have been assisting several people lately with short sales. During the process we discuss the serious impact this process will have on my clients credit score. The New York Times posted an article, that fills in the details further. Missed Mortgage Payments Hurt Credit Scores Missed mortgage payments, short sales, and foreclosures can all drastically bring down a credit score. Lenders use credit scores to measure how well a person handles debt. Credit scores range from 300 to 850, with 650 and below considered poor credit. A mortgage makes up a big part of a person’s credit score and often is the most important part of a person’s credit profile. And just missing a single mortgage payment by 30 days can ruin a credit score, say FICO and VantageScore, which have studied the impact mortgages can have on credit scores. For borrowers, that can be nearly as destructive as a foreclosure to a credit score, according to the companies. On the other hand, loan modifications, which is when lenders approve new loan terms, have a “very, very minimal” impact to credit scores, possibly dropping the borrower’s score by 10 or 15 points, Sarah Davies, the senior vice president for analytics at VantageScore, told The New York Times. A good credit score is important not just for financing home purchases, but employers increasingly check credit as well as landlords when seeking rentals. Also, poor credit scores can also mean higher costs on car loans and credit cards. How a Credit Score Is Affected FICO evaluated three various scenarios of mortgage holders — a borrower with a great credit score (780), a borrower with good credit (720), and a poor credit borrower (680) — in a study it conducted last month. Here’s the impact FICO found: ▪ 30 days late on a mortgage payment: The 780 credit score borrower has her credit score fall to 670-690. The 720 credit score borrower has his fall to 630-650. The 680 credit score borrower falls to 600-620. ▪ Short sale, deed in lieu of foreclosure, or settlement, assuming the balance has been wiped out: The 780 credit score borrower falls to 655-675; the 720 credit score falls to 605-625; and the 680 credit score drops to 610-630. ▪ Foreclosure, or short sale with a deficiency balance owed: The 780 credit score drops to 620-640; the 720 credit score falls to 570-590; and the 680 credit score decreases to 575-595. Source: “Fallout From a Poor Credit Score,” The New York Times (April 24, 2011)