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Finally, We Know: How Mortgage Delinquencies Impact Your FICO® Scores

There are a few certainties in life: death, taxes, and FICO not disclosing how many “points” certain events can cost your FICO scores. But, less than two weeks ago, the scoring giant did just that: provide some clarity on how many points you can lose by doing a variety of “bad” things with your mortgage loans.

Here’s what we already knew: delinquencies are bad, severe delinquencies are usually worse, and recent and frequent delinquencies are the worst.

As a result of FICO’s study results, we also now know the following:

For someone with a FICO score of 680…

A 30-day delinquency and a 90-day delinquency have the SAME score impact. Both of these events will turn the 680 into a score somewhere between 600-620.

A short sale (settlement), with a deficiency balance, will have the SAME score impact as a foreclosure. The events will turn a 680 into a score somewhere between 575-595.

A bankruptcy is the worst thing that can happen to your FICO scores. It will turn a 680 into a score somewhere between 530-550.

The amount of time for your score to fully recover back to a 680 is 9 months for a 30-day or 90-day delinquency, but it takes much longer to recover from anything worse. Short sales, settlements, and foreclosures all take three years to fully recover. A bankruptcy will take you five years to recover.

For someone with a FICO score of 780…

A 30-day delinquency and a 90-day delinquency have a different score impact. The 30-day late turns the 780 into a score somewhere between 670-690. A 90-day delinquency will turn the 780 into a 650-670.

A short sale (settlement), with a deficiency balance, will again have the SAME score impact as a foreclosure. The events will turn a 780 into a score somewhere between 620-640.

The amount of time for your score to fully recover back to a 780 is much longer than the amount of time for your 680 to recover. It takes three years to recover from a 30-day delinquency and seven years to recover from a 90-day delinquency, a short sale, or a foreclosure. It will take you seven to 10 years to recover from a bankruptcy.

What I found to be especially important is the fact that a payment that’s even just one cycle past due (a 30-day delinquency) has a profound negative impact on your scores.  This is especially problematic for consumers who have chosen to be delinquent on their mortgages in an attempt to get help under the Making Home Affordable plans.

“Consumers may be told in some cases that they have to go late before they can get any help under one of the HAMP (Home Affordable Modification Program) programs,” says Joanne Gaskin, Director of FICO’s Global Scoring Unit.  “It’s important for them to understand that even a 30-day late can be very damaging.”

This study also seems to finally put to bed the ongoing myth that short sales are better for your credit scores than foreclosures. “There seems to be a perceived view that a short sale is going to be significantly different to your FICO score than a foreclosure”, Gaskin says. “While there’s a minor difference, it’s not significant.”

(The above charts were copied from FICO’s Banking Analytics Blog.)

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger forMint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow him on Twitter here.

Photo credit: taberandrew