The Intimate Link between Foreclosures and Credit Scores

There is an intimate link between foreclosures and credit scores that need to be understood to minimize troubles.

When one starts lagging behind in mortgages the credit scores begin to suffer. This is known to all but by how much is the moot question that remains unclear. Till now it was difficult to get a positive answer. The credit bureaus were tight lipped about stating in points exactly how much impact the various kinds of foreclosures will have on credit scores.

The FICO scores had been set up by Fair Isaac. Recently it has come forth slightly from behind the curtains explaining the relationship between the scores and the foreclosures. If the borrower is 30 days late the scores will go down by 40 to 110 point and 90 days behind by 70 to 135 point. In the case of foreclosure/short sale/deed-in-lieu the points will be impacted by 85 to 160 and in the case of bankruptcy by 130 to 124.

To arrive at these figures Fair Isaac took up the instances of two imaginary consumers. The first one starts with fair to middle fair score of 580 and the second with a very good point of 780. The Fica scores stretch from 300 to 850. The second consumer with 780 points has 10 credit account while the other with 580 has a longer history of credit, has not utilized the total credit allowed and has not skipped any payments on any category. The other one has two modestly scarred accounts. None of them have anything averse noted in public records.

It is to be noticed that in the case of both one black mark causes steep falls. But things get tough when they drop even more as per the calculations of Craig Watts of Fair Isaac. He said, “The lending industry tends to regard an account differently when it has become 90 or more days late. The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days.”

The credit agencies are tight lipped because they themselves cannot be sure about what the different types of foreclosures (the term covering all the stages of the process) will tell on the counts because of the innumerable variables.

One may drop deeper than another with the same payment troubles said Maxine Sweet of Experian, a credit bureau. She explained, “If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more. For me, one missed payment would just be a blip.”

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