Your Credit Scores: Short Sale vs. Foreclosure

As consumers are swept into the foreclosure vortex, questions arise about whether to attempt a short sale or let the home go to foreclosure.  Which will damage credit less and allow the homeowner to more quickly reenter the market?

Many real estate professionals have promoted the idea that a short sale will be less damaging, and some have gone so far as to predict the number of points your score will drop on a short short vs. the point drop on a foreclosure.  This is like predicting how hot it will be on July 4th.  As I have disagreed in several posts including Short Sales vs. Foreclosures, Your Credit Will Suck Either Way,  one may be no better than another.

Here is an update from Old Republic Credit Services:

Recently, several alternatives to foreclosures have become popular. Some of these include “short sales” and “deed-in-lieu of foreclosure”. It is important to know that as far as the FICO score is concerned, there is no difference between foreclosures and these other options. Each is considered and an account that was “not paid as agreed” will have the same negative impact on the score. However, the account status reported is ultimately the decision of the creditor.

Lenders may state that the minimum time frame for securing a new loan is less for a short sale than for a foreclosure, but keep in mind that these are just the minimum time frames.  After that is satisfied, you’ll still need to have good credit scores in order to get a new loan.