Impact Of A Florida Foreclosure On Your Credit Score

How will a Florida Foreclosure or Short-sale affect your credit report?

Home owners contemplating a short-sale or Florida foreclosure frequently ask how the decision might impact their credit score and overall credit report. For those faced with no other option, the decision to give up your home probably means you’re not making your auto and credit card payments either.  Those in this position will take a severe hit to their credit score and ability to obtain credit in the future.  It will be a rebuilding process that will take several years and careful planning.

A second group of home owners are faced with an investment property they speculated on and are now upside down on their mortgage with no prospect of getting back to even any time soon.  Yet, another group are home owners that bought a primary residence during the peak of the market and are now upside down with little prospect of recovery in the foreseeable future.  Many of these home owners now find themselves faced by what is being referred to as a “business decision”.  The question here is, “What is the cost of continuing to make the payments until the housing market recovers versus walking away from the property?”  Most home owners can make an educated guess how long it will take for the market to recover and do the math to calculate the financial loss.  But, how will the credit report and credit score consequences affect their future going forward?

Anyone contemplating a short-sale or Florida foreclosure, whether it’s an investment property or your primary residence needs to know:

• A Florida foreclosure or short-sale will remain on your credit report for seven years.
• The impact of a Florida foreclosure or short-sale will lessen over time.
• A Florida foreclosure or short-sale is a single negative item on your credit report.
• Limiting the damage to your credit report to only the Florida foreclosure or short-sale will lessen the damage to your credit score.
• Limiting a Florida foreclosure or short-sale to a single negative item can allow you to regain your credit score in as little as two years.

Another common question many home owners ask is “Does it make a difference on your credit report or to your credit score if you do an alternative to foreclosure, such as, a short-sale or deed-in-lieu of foreclosure?”  The credit bureaus evaluate all of these options as “not paid as agreed accounts” and consider them the same for your credit score. When a home owner is considering bankruptcy as an alternative to foreclosure, that will have an even greater impact on your credit score.

So, how much of an impact will a Florida foreclosure or short-sale have on your credit score?

• Those with a 780 or higher credit score can expect a Florida foreclosure or short-sale to lower their credit score about 150 points.
• Those with a 680 credit score can expect their credit score to drop by 100 points.
• Those with a 780 credit score that add a bankruptcy to the Florida foreclosure or short-sale could lower their credit score by 230 points.
• Those with a 680 credit score that add a bankruptcy to the Florida foreclosure or short-sale may lower their credit score by 150 points.

The key to minimizing the damage to your credit report and credit score is to make sure that your “business decision” is held to a single negative item.  However, be aware that you will be unable to qualify for another mortgage for a minimum of 2-3 years after the Florida foreclosure or short-sale action.