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True or False? A Short Sale
reduces Fico scores 200 points.
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Short Sales are a topic of much confusion and
when it comes to how they affect scores it is no different. I
have written a few articles about this topic in the past but since
there have been many rumors lately it seemed a good time to bring it
up again. The rumors I have heard are "Short
Sales don't affect your credit" and "Short Sales NOW drop
your score 200 points". The truth is Short Sales do
affect your credit because they are considered
"Settlements". Like a settlement a short sale is an
agreement between the creditor and the consumer to take a sum lower
than the debt owed, usually immediate, for full payment of the agreed
upon amount. There may be exceptions to this rule in rare cases where
the bank agrees NOT to update the credit report as a negative
account. The chances of this happening with a short sale are
slim. It is about as likely as when it happens with a
credit card settlement and that is about 5% of the time.
The other rumor about Short Sales
dropping the score 200 points could be true depending on what score
we are discussing. For this article we are addressing the Fico Score
since it is the one used by banks when approving a Mortgage. What we
know is the higher your credit score the lower it drops with any
delinquency. When having a Short Sale, if there are no prior late
payments, the score can drop up to about 110 points. Most of the
consumers approaching a Short Sale have already had recent late
payments on their mortgage or even other credit accounts. Let's
face it the typical Short Sale applicant is currently having
financial problems. Those with recent negatives may see up to a
150-200 score drop but this is due to many derogatory accounts. If
the score was already low it will probably drop another 50-60 points
from a Short Sale. If the score was a 780 it could drop as low as a
680 even with no other negative accounts.
The scoring system already had
definitions of score drops from settlements way before Short Sales
came along. When you think about it a Short Sale is the same as
a settlement on any debt. The creditor takes less than full
balance and writes off the difference as a loss. The consumer
is released of responsibility for the unpaid difference.
This is why it affects the score in the same way. The scoring
systems view it as a "Settlement".
I think many consumers don't realize how
much one new late payment destroys their scores. If they have a Short
Sale, pull their credit a few months later, and see a 200 point score
drop they may assume it is all due to the Short Sale. What they
probably don't realize is all the late payments on one or multiple
accounts prior to the settlement had already decreased their score
dramatically.
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DEFINITION
OF A SHORT SALE:
A Short Sale is
when a bank agrees to take less than the current mortgage owed as
full settlement on the loan.
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How do
patterns of payment influence credit scores?
Does
opening and closing credit drop your score 60 points?
Do you have
ALL the answers??
Call for
your FREE Educational Seminar!
This
training includes indepth education on each of the credit reporting
agencies and the scoring systems associated with them. We will also
educate your management staff on credit, the unknown dangers of credit
score reduction and the ways to help your clients have peace of mind
and get the credit they need.
Contact NSA Today!
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Tracy
A. Becker
President
155
White Plains Road
Suite
203
Tarrytown,
NY 10591
(914) 524-5014
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Featured Testimonial
April 10, 2010
This is Steve Halpern one of
the agents from Ac Lawrence. Thank you so much for coming to speak to
us. My Fiance and I learned a lot. I've already passed your website on
to two customers. I learned so much that can help me in my future
personally, as an investor, and a real estate broker.
You had mentioned that you
would send us a copy of your one sheet as a pdf. I would like to
forward to a client who can use your help right away. Thank you in
advance and i really appreciate what you do.
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Copyright 2010
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