Lets ask the reporting agencies:
The impact a foreclosure, short sale or bankruptcy have on credit scores can vary depending on the credit profile of a particular person. The amount of the score’s drop is based on the person’s starting score. In general, a foreclosure will reduce a credit score by 140 points, he added; a short sale will drop the score by 130 points.
While both a foreclosure and a short sale will remain on a credit report for seven years, they are often reported differently. A foreclosure is reported as a foreclosure, but short sales can appear as “settled for less than balance owed,” or similar terminology.
There are distinct advantages for someone to choose a short sale over a foreclosure. Specifically, they will have the ability to become homeowners again faster vs had they experienced a foreclosure…here are the recently updated lending guidelines:
1) Foreclosure is 7 years
2) Deed-in-Lieu is 4 years < 80% LTV and 5 years > 80% LTV for primary residences. 7 years for second homes and investment properties regardless of LTV.
3) Short Sales is 2 years < 80% LTV and 5 years > 80% LTV and 7 years > 90% LTV
4) Bankruptcy is 4 years
According to TransUnion foreclosure won’t in and of itself impact credit, particularly since it arrives on the heels of hard financial times.
“Foreclosure will be regarded as a derogatory action on a credit report and will have a more serious impact than a loan modification or a short sale, but only if it is publicly reported,” ……If a property is going into foreclosure, more than likely the damage has already been done to the person’s credit report with missed mortgage payments that resulted in the foreclosure.”