Short Sale vs. Foreclosure?

You make the call!

I get the question from people all the time: short sale or foreclosure, which is the better option? My knee-jerk reaction is always “Are you kidding? Short sale, of course!” This has been mostly because I was always under the impression that a short sale, although still a ding on your credit, was gentler on the score than a foreclosure.

But according to a recent blog post by FICO Banking Analytics, there is no real difference in the affect a short sale or a foreclosure has on your credit score. Both the impact in points and the time to fully recover is about the same for both events.

This put me in a precarious situation. All this time I had lauded the short sale as vastly superior to foreclosure, largely because of its less adverse affects on credit. So I was forced to do further research into which was the better option. In doing so I learned about benefits of a short sale I wasn’t even aware of, and found that the FICO blog was way off.

Each borrower’s credit situation is different, and the way that a creditor reports a short sale to bureaus is different. The reality is that hundreds of thousands of distressed homeowners who have chosen a short sale have experienced a lesser impact on their credit than those who have chosen foreclosure.

In a short sale, a distressed homeowner may be able to obtain another mortgage sooner than someone who has a foreclosure on his or her record. Also, more and more employers pull credit before hiring a potential employee, and a foreclosure can keep you from getting a job. Some employers pull credit reports on existing employees, and a foreclosure may not bode well in certain industries.

These benefits stacked against the negatives of foreclosure, including the embarrassment of public announcement and literally being kicked out of your home, make, in my opinion, short sale the reigning champion.

Now you make the call!

For more information about short sales, click here.

FICO 08 - New Credit Score Model

The credit scoring system is being tweaked again as Fair Isaac Corporation, developer of the FICO credit score rolls out a new model dubbed FICO 08.
The three major credit bureaus announced credit score packages of their own, probably having seen the success FICO was having in charging consumers for information on their credit scores. FICO, however, remains the product used by most lenders not only to grant credit but to set interest rates and other loan terms. FICO scores are also factored into credit decisions by insurance underwriters, cell phone, and utility companies and are sometimes used by employers to evaluate prospective employees.

FICO predicts that the new scoring system will help lenders reduce default rates on consumer loans between 5 and 15%. FICO 08 will supposedly go easier on consumers who make the occasional slip while coming down harder on those with multiple offenses. For example, it will give a slightly higher score than previously to a borrower who is late on one obligation but current on multiple other accounts. Those with several delinquent accounts could find their credit score has dropped.

To read more: http://tiny.cc/doCy2

Experian FICO Credit Scores No Longer Available

As of February 14, information on Experian credit scores will be more difficult for consumers to obtain. Experian will no longer sell its information through MYFICO.com or any other external credit reporting agency. Consumer may still receive the free credit report that they are entitled to by law through the Annual Credit Report request service and may purchase a credit report and score directly from Experian. However, these score may vary from the scores used by lenders. According to The New York Times and Tom Quinn, vice president for scoring at Fair Issac (the company that formulated the FICO score), “Experian cannot distribute its FICO scores to consumers itself or though other outlets. Experian does produce another propriety three-digit credit score and make it available to consumers, but it is not the one that lenders base their decisions on.” Lenders will still have access to the complete FICO scores, including FICO scores from Experian. It will be increasingly important for consumers to check for errors on their credit reports.