Since foreclosure rates are going through the roof, I am getting this question a lot lately. If you are faced with this situation, you’ll probably want to know how big a hit your credit is going to take.

My typical answer to all things score related is “if I knew the answer, I’d be a millionaire”. The exact credit score calculations are known only to Fair Isaac, some math modeling dweebs at banking institutions and the creator of the little known and unused Vantage Score.

Now that I’ve given my disclaimer, let’s tackle the answer. As with anything else credit score related - the effect a single item will have depends on what the rest of your credit report looks like. Does your credit report look like an exploded mine field? Then the answer is: a foreclosure won’t have a whole lot of effect, since the rest of your report was in poor shape to begin with. However, if the foreclosure is the only new blemish, it’s not unreasonable to assume the drop could be from the mid-700s to a score ranging from the high-500s to the low 600s. I’ve seen a lone new collection have a similar effect on a credit report and a foreclosure is a much more serious negative mark.

And don’t think a short sale will be better for you. You are still technically defaulting on the loan - you are getting the bank to accept less money then the principal amount. So the effects will be the same on your credit score and it will read as a foreclosure on your credit report.

How to recover? The same as the recover from any negative: time and credit rebuilding efforts.

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