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A:
Many people worry about foreclosure and its effects on their credit scores. As a result, they try a short sale of their home in an attempt to minimize the damage. Unfortunately, this is a myth. There is no real difference as to a short sale, deed in lieu of foreclosure, settled account, or a foreclosure, when it comes to your score.
This is because, according to the Fair Isaac Company (FICO), which generates the scores, credit bureau reports are limited in how they represent foreclosures today, so it's generally not possible to tell from the credit report how the loan was resolved, only that the borrower did not meet his or her obligations under the terms of the mortgage loan.
How a short sale affects your score can also be a function of when it happens and whether you have other credit problems going on. Were you current with payments at the time, or were you a few months behind? Had foreclosure already started? Are you behind on other debts?
How your credit scores are affected is not simple and can vary greatly from person to person. If you have further questions about what you can do to protect your credit score, please call me at 888-857-8418 or contact me through this site.