Missing mortgage payments will hurt your credit score, that is a given. However, as the number of short sales and foreclosures has increased over the past few years, the question has been just how much missing payments on your mortgage affects your credit score.
In a recent report from Fair Isaac, the company that developed FICO scores, estimates were revealed for some of the point score declines following various mortgage delinquency scenarios.
Here are the average hit your credit will take in each of these scenarios:
30 days late: 40 – 110 points
90 days late: 70 – 135 points
Foreclosure, Short Sale or Deed-In-Lieu of Foreclosure: 85 – 160
Bankruptcy: 130 – 240
The reports indicate that even one missed mortgage payment can have a significant impact on the credit score of a borrower, but the real tipping point comes when accounts get to 90 days or later past due, as statistics show that this is when accounts are least likely to ever be paid current again.
Of course, other factors come into play as well. As someone with limited credit will be hurt more, then someone with a large amount of accounts and a good long standing history may be affected differently as well.
In addition, someone with a less than perfect credit history and a lower score may also have less room to drop then a person with a higher credit score as well.
In addition, in a note interesting to the current state of the market, it was revealed that even if a borrower were able to walk away from their home with a short sale or deed in lieu of foreclosure and not necessarily miss many payments, their credit score could still be hurt significantly. That is because if it is reported that the account was settled for less than the full balance, a serious delinquency is calculated into the person’s credit score, regardless of how many payments they missed.
Of course, the absolute biggest effect on credit score occurs in cases of bankruptcy as the credit bureaus treat this with the biggest impact on credit scores.
While none of this news is information that may come as a major surprise, this is the first release of estimates of the affects of foreclosure and short sales on borrowers credit reports. For those that unfortunately have to deal with these hardships it will definitely take a major toll in the short term on credit. However, like with most things, with the proper management, you credit score can rebound with solid financial planning and responsibility going forward. After a hardship home ownership can occur within just a few short years with the right planning.