If you are you are having financial problems that lead to foreclosure or short sale, your credit report will tell the story long after you have moved on. What is the impact? Is there a difference in the impact of foreclosure vs. a short sale when you sell your home? Recently, FICO, the company that produces the credit score used by many lenders to evaluate creditworthiness, offered some surprising answers to these questions – and added some new insights as well. Bad news for high scorers First, FICO sees little difference between a foreclosure and short sale. In either case, the lender received less than the balance of the loan, so the defaulting homeowner might lose from 85 to 160 points from his credit score. Why the range? The steepness of the fall depends on what the score was to start out. High scores lost more points than ones that started out low. A high 780 score would lose the 160 points, while a mid-range score of 720 would lose 130-150 points, and the low score of 680 would lose “only” 85-105 points. The same pattern of dinging high credit scores more heavily than low ones prevails with late payments too. When 30 days late, a high score might lose 90-110 points, plus an extra 20 if they were 90 days late. Low scorers are zapped 60-80 points whether they were late by 30 days or 90. Here’s the kicker. A borrower with a high score will not recover from…
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How Bad Credit Costs You
As anyone who has watched silly commercials about people with poor credit being doomed to drive hoopties or make their living in costume at a Renaissance fair knows, a bad credit score costs you! You may be denied the card you want, a gas card, a job, or an apartment plus embarrassment, with or without costume. If your credit score is low and you want to buy a home, how much will those credit-card funded dinners and shoes of the past cost you? The results are amazing. According to Credit Technologies, who spoke at a recent National Association of Mortgage Brokers seminar, the difference between having a credit score over 720 vs. 620 is an interest rate of 5% versus one of 8.75%. As the chart shows, a differing interest rate on a 30 year mortgage can have a big impact on the payments for a $125,000 mortgage, including taxes. Credit Score ARP Interest over loan term Total Amount Paid Monthly payment 760-850 5% $127,715.56 $307,194.73 $853.32 700-759 5.5% 141,2338.38 $321,130.05 $890.03 680-699 6% $155,318.57 $335,422.74 $931.73 660-679 6.5% $169,638.94 $350,055.61 $972.38 640-659 7% $184,229.87 $365,011.12 $1,013.92 620-639 7.5% $199,177.78 $380,271.53 $1,056.31 600-619 8% $214,412.81 $395,819.06 $1,099.50 580-599 8.5% $229,917.32 $411,636.07 $1,143.43 550-579 9.0% $245,621.84 $427,705.18 $1,188.07 500-549 9.5% $261,613.56 $444,009.39 $1,233.36 If your household income is about $35,000 a year, a house with $125,000 mortgage might put your monthly cost for a house at about 25%, so a payment of $853.32 might be just about right. If your…