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How mortgage delinquency impacts FICO scores finally made public

Distressed homeowners will feel the pinch

dollar moneyIt makes sense that if you don’t pay your mortgage, your credit score takes a hit, right? Until recently, no one could pin down the exact science credit bureaus were using to penalize delinquencies and the bureaus were very tight lipped about the process.

CNNMoney.com reports that Fair Isaac (which developed FICO scores) has come public with “estimates of point-score declines following mortgage delinquency problems.”

According to Fair Isaac, here is the credit score docking for mortgage delinquency:

  • 30 days late: 40 – 110 points
  • 90 days late: 70 – 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 – 160
  • Bankruptcy: 130 – 240

Some borrowers will be hit harder than others, depending on other credit factors (especially other mature accounts that are in good or bad standing).

Advising distressed homeowners

Most distressed homeowners aren’t choosing not to pay their mortgage, there is typically a distressing factor like loss of income.

That said, a credit score is the last thing on a troubled homeowner’s mind, but it is important that as professionals that deal with distressed homeowners on a more frequent basis than in the past, it is important to be armed with this type of information should the question arise.

Confusion is at an all time high as news that participation in HAMP impacts credit scores and up until now, no one knew the average credit score hit mortgage delinquencies, so this information is timely and important not only to the consumer but to the real estate professional.

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CC Licensed image courtesy of thisisbossi via Flickr.com.

Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

15 Comments

15 Comments

  1. Benn Rosales

    April 26, 2010 at 8:48 am

    I foresee a redefining of subprime lending, sub may quickly become the new normal.

  2. Doug Francis

    April 26, 2010 at 12:29 pm

    Okay, am I supposed to add these numbers up? Like you are 90 days late (-100) and then you did a short sale (-160) so you dropped about 260 points – ?

    My question is credit score repair and when someone can begin to rebuild their score? 6 months or a year?

  3. Greg Afarian

    April 26, 2010 at 4:20 pm

    In my experience as a mortgage professional for 14 years, I know that banks like to see at least 12 months without a mortgage late unless there is an extraordinary reason for the late. However, I have seen people buy a home after a bankruptcy in 6 months but, again the reason came into play. In a BK it’s usually 2 to 4 years and if it involves a foreclosure it could be anywhere from 4 to 7 years. FICO Scores still are a bit of a science in regards to Revolving Debt (Credit Cards) alot goes into the balances you owe, how long the account has been opened, recent inquiries, and how much you pay towards you balance to determine additions and deduction to a persons score. Great post!

  4. Matt Stigliano

    April 28, 2010 at 10:40 am

    How long before they change the formula? I can imagine it won’t remain so transparent for long. They’ve never been fond of giving an information about direct results to your credit score.

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