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FICO researches the impact of mortgage delinquencies on credit scores

The surprising results of how mortgage delinquencies affect consumer credit scores and how long it takes to restore credit scores
how foreclosure,deed-in-lieu and short sale lowers credit score
how foreclosure,deed-in-lieu and short sale lowers credit score

how foreclosure,deed-in-lieu and short sale lowers credit scoreFICO, the most widely used credit scoring formula, recently shed light on how much impact mortgage delinquencies, short sales and foreclosures have on consumer credit scores and how long it may take a credit score to recover.

The FICO credit score is a widely used credit standard in the financial industry and as well as a heavily guarded secret. Although FICO gives us an idea of the elements that go into calculating a credit score: payment history; amount of debt; length of credit history; credit mix; and new credit, the exact formula remains unknown.

Joanne Gaskin, Director of Mortgage Scoring Solutions at FICO, released a study showing the effects of various mortgage delinquencies using representative credit profiles for consumers whose scores are 680, 720 and 780. Ms. Gaskin stated “we focused on consumers whose credit characteristics (e.g. utilization, delinquency history, age of file) were typical of the three score points considered.”

The results were similar to how late payments affect credit scores in that the higher the credit score, the larger the negative impact on the credit score and the longer it will take to recover from the drop in credit score.


For example: A consumer with the 780 credit score may lose up to 125 points and require close to 7 years to regain the prior score as a result of short sale or foreclosure. A consumer with the 680 score may only lose between 50 to 70 points and recovery would take approximately 3 years.

The below tables from FICO contain information on how specific mortgage delinquencies cause credit scores to drop and an estimated timeline for how long it will take for the credit scores to recover to pre-delinquent status:

Significant findings from the study:

  • The degree of impact on a FICO score depends on the starting point of the credit score.
  • There is no significant difference in the widely used remedies for delinquent mortgages: a deed-in-lieu of foreclosure/settlement; short sale and foreclosure.
  • Although a credit score may improve sooner, it could actually take up to 7-10 years for a credit score to fully recover, assuming all other obligations are paid as agreed.
  • Generally, the higher the credit score, the longer it takes for the credit score to fully recover.
  • There is a significant difference in the time it takes a credit score to recover even when there is a minimal difference in score impact between moderate and severe delinquencies.

Gaskin noted that given the wide range of credit profiles, results may vary beyond the information presented in the charts. The numbers are only representative figures. Because every consumer’s credit history is different, the negative effect of mortgage delinquencies may not be consistent with the results of the research. But the information is still very valuable. Consumers can use this data to make informed decisions when faced with the dilemma of how to resolve mortgage delinquencies.

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