Homeowners who find themselves struggling with mortgage payments and unsure how to handle the situation...short sale, foreclosure, or walk away...should consider the impact of each of these on their credit scores.
Some loan modifications, such as refinancing underwater mortgages may have little or no negative effect on credit scores, in fact, those that add late payments and penalties into the principal owed on the house can actually increase borrowers’ scores modestly.
Short sales, on the other hand, can trigger big declines in credit scores, according to researchers. A homeowner with an excellent credit score might see a 120 to 130 point decline after a short sale.
Homeowners who choose to walk away from the home and stop payments altogether should expect their credit scores to fall 140 to 150 points, and have negative marks on their credit files for up to seven years.
People filing for bankruptcy protection covering all their debts will get hit with an average 355- to 365-point drop in their scores, and bankruptcies stay on borrowers’ credit for 10 years.
But there is some good news. Homeowners facing financial stress can experience minimal declines to their scores if they contact their lender when they first discover that they may have trouble making their monthly payments....It's worth a try.
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