FICO Impact and Recovery

The question is asked frequently regarding how much impact will a short sale, foreclosure, deed in lieu or bankruptcy have on my FICO score?  

I checked out the FICO Banking Analytics Blog and found some very interesting information.  FICO conducted a study of delinquencies regarding mortgages.  In their study they looked at three different consumer profiles.  All three profiles consisted of consumers who were paying as agreed on their mortgages. 

Consumers with a 680 score .

Consumers with a 720 score.

Consumers with a 780 score. 

The study then showed the impact on the credit score after each “phase” of delinquency.  For example:  

After the very first 30 day late on the consumers mortgage -

Consumer with a 680 score moved to 600-620

Consumer with a 720 score moved to 630-650

Consumer with a 780 score moved to 670-690

After the 90 day late on mortgage -

Consumer with an original 680 score moved to 600-620

Consumer with an original 720 score moved to 610-630

Consumer with an original 780 score moved to 650-670

Interesting huh?  I’m not finished.  Lets look at short sales, foreclosure and bankruptcy.

After completing a short sale or deed-in-lieu settlement with no deficiency balance

Consumer with an original 680 score moved to 610-630

Consumer with an original 720 score moved to 605-625

Consumer with an original 780 score moved to 655-675

After completing a short sale, with a deficiency balance

Consumer with an original 680 score moved to 575-595

Consumer with an original 720 score moved to 570-590

Consumer with an original 780 score moved to 620-640

Foreclosure -

Original 680 score moved to 575-595

Original 720 score moved to 570-590

Original 780 score moved to 620-640

And Finally, Bankruptcy -

Original 680 score moved to 530-550

Original 720 score moved to 525-545

Original 780 score moved to 540-560

I found all of this information very interesting and definitely saw some kind pattern that caused me say, hmmmm, but wait, I’m not finished with the results of this study.  Pattern or not, we all know the credit score is going to go down with any of these delinquencies but maybe more important is how long will it take to recover?

This is what I thought most interesting.

After the first 30 days late it would take the original 680 score consumer 9 months to recover.  The 720 consumer, 2.5 years and the 780 consumer 3 years!

After the 90 day late period it would take the original 680 score consumer 9 months to recover.  The 720 consumer 3 years and the 780 consumer 7 years!!

How about after Short Sale, Deed-In-Lieu settlement with no deficiency balance?

680 consumer will recover in 3 years

720 consumer will recover in 7 years

780 consumer will recover in 7 years

The results are the same with a deficiency balance.

Foreclosure-

680 consumer will recover in 3 years

720 consumer will recover in 7 years

780 consumer will recover in 7 years

Bankruptcy-

680 consumer will recover in 5 years

720 consumer will recover in 7 - 10 years

780 consumer will recover in 7 - 10 years. 

Quote from FICO Banking Analytics - 

“In general, the higher starting score, the longer it takes for the score to fully recover.”  

Granted the consumers score will gradually improve as time goes by and they demonstrate their other payments are paid as agreed but in all actuality it may take up to 7 - 10 years to fully recover for consumers that originally started with higher credit scores than consumers that started with lower scores.

I think this is very good information for any consumer that is looking at a possible short sale or foreclosure.  There are consumers that have definite hardships that obviously show up in the original credit score and there are consumers looking at the so called “strategic default” that should consider the impact on their credit recovery time line.  I have no opinion on either really but I do find it quite interesting!