How Foreclosures impact your credit score

How foreclosure impacts your credit score

Everyone knows that late payments affect your credit score. Until recently, finding answers on the effect of a late payment or default on a mortgage were difficult to uncover. Credit reporting agencies are less than forthcoming about expressing, in points, how much impact a late payment, foreclosure or bankruptcy will have on a customer's credit score.  Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines with respect to mortgage delinquency issues.  To reach the following figures, Fair Isaac created two hypothetical consumers, one who starts out with a average score of 680, and the other with a very good score of 780. (FICO scores range from 300 to 850.) Here are the average credit score point reductions:

30 days late:                       40 - 110 points 
90 days late:                       70 - 135 points  
Foreclosure,short
sale or deed-in-lieu:        85 - 160 points
Bankruptcy:                      130 - 240 points 
 

To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

Understanding Your Credit Score

A few additional points are worth mentioning:

1) The lending industry regards an account differently when it has become 90 or more days late. The likelihood that consumers resume paying an overdue obligation drops significantly after the delinquency reaches 90 days.

2) Five main factors affect a credit score, as summarized below:

     (a) Payment History (35%)
     (b) Amounts Owed (30%)
     (c) Length of Credit History (15%)
     (d) New Credit (10%)
     (e) Types of Credit Used (10%)