Foreclosure, short sale and bankruptcy hurt your credit score on clarkhoward.com

Clark is often asked how a short sale or foreclosure will impact someone's credit score. A new report from syndicated writer Kenneth Harney now reveals the damage.

Before we go further, please note that these figures below are compiled based on your Vantage credit score. The Vantage score is a fake score manufactured by the three main credit bureaus -- Equifax, Experian and TransUnion. It is not the official score used by most lenders. Yet it still give you a good indication of what to expect with your true credit score.

• A short sale will ding your credit score by 120-130 points.
• A foreclosure will drop your score by 140-150 points.
• Bankruptcy can decimate your credit score by 365 points.

When you do a short sale, the lender agrees to let you sell your property for below market value and everyone walks away, essentially with almost no harm, no foul. But if you go into foreclosure, the lender has the right to sue you for deficiency. That means you're responsible for whatever financial losses they suffer as a result of the foreclosure.

And that can lead you to bankruptcy, which will remain on your file for 10 years.

What others are saying

Common Sense
To those who have lost your jobs and are in debt with credit cards, you must realize that if you did not use credit cards to float yourself a higher standard of living than you can afford, you wouldn't be in negative cash flow today. Essentially, if you would have reduced your expenses or downsized your home, you could have increased your cashflow, making it possible to build a nest egg to help you ride out economic storms. One of the most prolific topics in the bible (over 3500 verses) deal with finances. I recommend "Crown Financial Ministries [www.crown.org] as a great place to learn biblical financial principles. Reality checks are not negotiable instruments - they are only to be taken at face value only!
By Storyteller @ 10/21/09 10:18:11 PMreport abuse
Credit Cards
I just want your opinion. Or advice. I have about $8,000 owed on three different credit cards, and none of them are maxed out. My thought is tackling this debt at about $800 per month. Discover sent me a letter recently offering me a "personal loan" which at first I thought was a "balance transfer" and I did apply for it. My thoughts are that I take the loan, pay at least $800 each month, and have it paid of within 14 months. I wonder if there are any catches, and if this is a good idea. My credit rating was 760 the last time I checked; however, I have to get this one under control. I am just curious what you'll might think.

Jeff
By Jeff @ 10/07/09 11:15:13 PMreport abuse
Short Sale with a Note
Clark, What about the short sales when banks ask the homeowner to sign a note saying that they owe the difference (realistically, they know that it's going to be hard to collect on it, but they're still asking for it in some instances).

What should a homeowner do in that case? Please advise.

Anthony
By Anthony @ 10/06/09 04:24:56 PMreport abuse
Excuses
Everybody should take on the responsibility for themselves, nobody should get a free pass for anything. I worked close to 1000 hours of overtime every year when the times where good. Paid off my house, don't carry ANY credit card debt or loans plus I built up a huge emergency fund. I beg to get fired now because I know I could live for years w/o no impacts. Funny thing when you are smart about your money you generally become wanted by employers. Debra, if you would spend as much time looking for new job as you do commenting on here your problems would be over with quickly.
By Craig @ 10/06/09 12:55:02 PMreport abuse
Missing the Point
It's not your fault if you lose your job, but if you don't have credit card bills, car loans, etc. then you'll still be okay. The problem isn't the job loss it's the debt you're carrying around. Other than a mortgage, never be in debt to anyone for anything.
By Layne @ 10/05/09 06:01:23 PMreport abuse
Short Sale
As a Mortgage Loan Officer I would like to add that when reviewing a credit report we have guidlines for a short sale and they are as strict as a foreclosure; please don't be fooled into believing that they are a free ride!
By Nicole @ 10/05/09 05:49:24 PMreport abuse
Credit History
I don't carry any credit card debt or car notes. While everyone else was toodling around in new cars, I was driving back & forth to work in a $4000 car that I do the work on.
I couldn't live on $1200 a month, which is why I have a $70k emergency fund in place to supplement unemployment.
It's not your fault that you lost your job & I do feel bad for you. However, economies work in cycles. They surge up and down. Did you think that wave the US was riding on for the past 20 years was going to go on forever? It's important to be very well prepared.
Why should you get a free pass from Congress when I get nothing?
You should really try to get debt free, it's a very liberating place to be. It's easier to stay ahead. The only people who get rich off of debt are the bankers.
For what it's worth, the US economy stands very little chance to recovering to it's early 2007 heights. The BRICs (Brazil, Russia, India, China) are starting to gain serious middle classes, and the American standard of living is going to come down considerably over the next couple of decades.
By Lee @ 10/05/09 04:24:56 PMreport abuse
Lee, The thing is I don't/didn't live above my means. I have a home, a car, and a few cc bills. They weren't crazy out of control. My total cc bills were less than 5K. But I wonder if you could live off $1200 a month ($300 per wk unemployment.) Paying a mortgage, car note, utilities, etc. It's not my fault and it's obvious that you all have no compassion for people who have lost their jobs who helped make up the fabric of America. God Bless you all. I'm hppy that your financial outlook is good. Hope you'll always be able to pay your bills on time and provide for your family as you're obviously able to do....right now anyway.
By Debra @ 10/05/09 03:15:00 PMreport abuse
Other impacts of Short-Sale/Foreclosures
Clark - one thing not mentioned in the article for short-sales is the possibility (or requirement) that the bank sends a 1099 to the seller (which is the differce between the amt.owed and short-sale amt). The seller may be hit with major tax bill and IRS issues. Also, I hear most banks dont go through with suing if you let the house go to foreclosure....but they have the right (would love other opinions on this part).
Bob
By Bob D. @ 10/05/09 03:07:47 PMreport abuse
Credit History
Debra, what about the people who lived within their means, lost their jobs and WERE able to pay their bills (they are out there)? By giving you a pass, you will basically encourage more people to live stupidly.
Capitalism is inherently unstable. Were you offering to pay higher taxes when times were good? I don't think so. Stop trying to nationalize your risks.
Sounds like you should be selling all of your stuff to pay your bills.
By Lee @ 10/05/09 02:56:22 PMreport abuse
Credit
You people are missing the big picture. I bet it's people like you who don't want affordable health care for all. I hate to be mean spirited, to I declare and decree that you lose your job tomorrow and all your savings will be lost to a hacker.
By Hannah @ 10/05/09 02:07:29 PMreport abuse
Credit History
Sir, Ma'mam, you completely misunderstand. There are a lot of folks who, like me, had good credit scores. Howeer, since I lost my job. I can't pay my bills. So, you think it's fair that I have to suffer because our economy sucks? I hope that you don't get in the position whether it's sickness, financial or otherwise where you can't pay your bills. Then we'll see what song you'll sing. God Bless You. I hope wish you well.
By Debra @ 10/05/09 02:04:39 PMreport abuse
No one should get a "pass" when it comes to credit. Will it is not your fault you lost your job, it is your fault that you can't pay your bills. I know that if I lose my job i will be fine for 1 year with savings. sometimes you have to take of yourself and stop getting handouts from the gov.
By Luke Pettit @ 10/05/09 01:58:54 PMreport abuse
I agree, let's do away with credit history
The bank should just take my neighbor, or whoever's word for it that I'm going to pay them back. Forget my actual history of paying back debt. After all, it's the gov'ts fault that I bought a bunch of "stuff" on credit that I can't pay back.
By drew @ 10/05/09 01:48:13 PMreport abuse
Credit Scores
I think Congress should pass an act that allows all of who have been effected by the economic turndown a pass on credit. It's not our fault that businesses closed and we were put out of work. We can't help that we can't pay our bills because we have no job. I also think now is a great time to get rid of all the credit bureaus. When the economy does bounce back, no boady will be able to pourchase anything on credit because we've all been victimized by the recession. I think they ought to go back to the old way of doing things. Give yur references and and let the lender, creditor decide on their own and not rely on this BS saystem.
By Debra @ 10/05/09 12:39:48 PMreport abuse

Common Sense

To those who have lost your jobs and are in debt with credit cards, you must realize that if you did not use credit cards to float yourself a higher standard of living than you can afford, you wouldn't be in negative cash flow today. Essentially, if you would have reduced your expenses or downsized your home, you could have increased your cashflow, making it possible to build a nest egg to help you ride out economic storms. One of the most prolific topics in the bible (over 3500 verses) deal with finances. I recommend "Crown Financial Ministries [www.crown.org] as a great place to learn biblical financial principles. Reality checks are not negotiable instruments - they are only to be taken at face value only!

By Storyteller @ 10/21/09 10:18:11 PMreport abuse

Credit Cards

I just want your opinion. Or advice. I have about $8,000 owed on three different credit cards, and none of them are maxed out. My thought is tackling this debt at about $800 per month. Discover sent me a letter recently offering me a "personal loan" which at first I thought was a "balance transfer" and I did apply for it. My thoughts are that I take the loan, pay at least $800 each month, and have it paid of within 14 months. I wonder if there are any catches, and if this is a good idea. My credit rating was 760 the last time I checked; however, I have to get this one under control. I am just curious what you'll might think.

Jeff

By Jeff @ 10/07/09 11:15:13 PMreport abuse

Short Sale with a Note

Clark, What about the short sales when banks ask the homeowner to sign a note saying that they owe the difference (realistically, they know that it's going to be hard to collect on it, but they're still asking for it in some instances).

What should a homeowner do in that case? Please advise.

Anthony

By Anthony @ 10/06/09 04:24:56 PMreport abuse

Excuses

Everybody should take on the responsibility for themselves, nobody should get a free pass for anything. I worked close to 1000 hours of overtime every year when the times where good. Paid off my house, don't carry ANY credit card debt or loans plus I built up a huge emergency fund. I beg to get fired now because I know I could live for years w/o no impacts. Funny thing when you are smart about your money you generally become wanted by employers. Debra, if you would spend as much time looking for new job as you do commenting on here your problems would be over with quickly.

By Craig @ 10/06/09 12:55:02 PMreport abuse

Missing the Point

It's not your fault if you lose your job, but if you don't have credit card bills, car loans, etc. then you'll still be okay. The problem isn't the job loss it's the debt you're carrying around. Other than a mortgage, never be in debt to anyone for anything.

By Layne @ 10/05/09 06:01:23 PMreport abuse

Short Sale

As a Mortgage Loan Officer I would like to add that when reviewing a credit report we have guidlines for a short sale and they are as strict as a foreclosure; please don't be fooled into believing that they are a free ride!

By Nicole @ 10/05/09 05:49:24 PMreport abuse

Credit History

I don't carry any credit card debt or car notes. While everyone else was toodling around in new cars, I was driving back & forth to work in a $4000 car that I do the work on.
I couldn't live on $1200 a month, which is why I have a $70k emergency fund in place to supplement unemployment.
It's not your fault that you lost your job & I do feel bad for you. However, economies work in cycles. They surge up and down. Did you think that wave the US was riding on for the past 20 years was going to go on forever? It's important to be very well prepared.
Why should you get a free pass from Congress when I get nothing?
You should really try to get debt free, it's a very liberating place to be. It's easier to stay ahead. The only people who get rich off of debt are the bankers.
For what it's worth, the US economy stands very little chance to recovering to it's early 2007 heights. The BRICs (Brazil, Russia, India, China) are starting to gain serious middle classes, and the American standard of living is going to come down considerably over the next couple of decades.

By Lee @ 10/05/09 04:24:56 PMreport abuse

Lee, The thing is I don't/didn't live above my means. I have a home, a car, and a few cc bills. They weren't crazy out of control. My total cc bills were less than 5K. But I wonder if you could live off $1200 a month ($300 per wk unemployment.) Paying a mortgage, car note, utilities, etc. It's not my fault and it's obvious that you all have no compassion for people who have lost their jobs who helped make up the fabric of America. God Bless you all. I'm hppy that your financial outlook is good. Hope you'll always be able to pay your bills on time and provide for your family as you're obviously able to do....right now anyway.

By Debra @ 10/05/09 03:15:00 PMreport abuse

Other impacts of Short-Sale/Foreclosures

Clark - one thing not mentioned in the article for short-sales is the possibility (or requirement) that the bank sends a 1099 to the seller (which is the differce between the amt.owed and short-sale amt). The seller may be hit with major tax bill and IRS issues. Also, I hear most banks dont go through with suing if you let the house go to foreclosure....but they have the right (would love other opinions on this part).
Bob

By Bob D. @ 10/05/09 03:07:47 PMreport abuse

Debra, what about the people who lived within their means, lost their jobs and WERE able to pay their bills (they are out there)? By giving you a pass, you will basically encourage more people to live stupidly.
Capitalism is inherently unstable. Were you offering to pay higher taxes when times were good? I don't think so. Stop trying to nationalize your risks.
Sounds like you should be selling all of your stuff to pay your bills.

By Lee @ 10/05/09 02:56:22 PMreport abuse

Credit

You people are missing the big picture. I bet it's people like you who don't want affordable health care for all. I hate to be mean spirited, to I declare and decree that you lose your job tomorrow and all your savings will be lost to a hacker.

By Hannah @ 10/05/09 02:07:29 PMreport abuse

Sir, Ma'mam, you completely misunderstand. There are a lot of folks who, like me, had good credit scores. Howeer, since I lost my job. I can't pay my bills. So, you think it's fair that I have to suffer because our economy sucks? I hope that you don't get in the position whether it's sickness, financial or otherwise where you can't pay your bills. Then we'll see what song you'll sing. God Bless You. I hope wish you well.

By Debra @ 10/05/09 02:04:39 PMreport abuse

No one should get a "pass" when it comes to credit. Will it is not your fault you lost your job, it is your fault that you can't pay your bills. I know that if I lose my job i will be fine for 1 year with savings. sometimes you have to take of yourself and stop getting handouts from the gov.

By Luke Pettit @ 10/05/09 01:58:54 PMreport abuse

I agree, let's do away with credit history

The bank should just take my neighbor, or whoever's word for it that I'm going to pay them back. Forget my actual history of paying back debt. After all, it's the gov'ts fault that I bought a bunch of "stuff" on credit that I can't pay back.

By drew @ 10/05/09 01:48:13 PMreport abuse

Credit Scores

I think Congress should pass an act that allows all of who have been effected by the economic turndown a pass on credit. It's not our fault that businesses closed and we were put out of work. We can't help that we can't pay our bills because we have no job. I also think now is a great time to get rid of all the credit bureaus. When the economy does bounce back, no boady will be able to pourchase anything on credit because we've all been victimized by the recession. I think they ought to go back to the old way of doing things. Give yur references and and let the lender, creditor decide on their own and not rely on this BS saystem.

By Debra @ 10/05/09 12:39:48 PMreport abuse

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Oct 02, 2009 -- Foreclosure, short sale and bankruptcy hurt your credit score

What others are saying