“Both short sales and foreclosures are considered negative by the score, because our data shows us it’s very predictive of future credit risk,” Tom Quinn, of Fair Isaac, said. “The claim that doing a short sale is not going to hurt your score is false. It’s inaccurate.”
In both cases, banks will be wary of those that short sell because that person forced the lender to lose a lot of money.
One company that calculates credit scores says that a short sale will create a drop of between 120 and 130 points on the credit score of a consumer whose record is clean otherwise, the article says. And with foreclosures, the credit score hit can range from 130 to 140 points. And for those with spotty credit records, the drop for short sales is 15 to 25 points as opposed to 10 to 20 for foreclosure. The difference in the drops obviously stems from the risk in loaning to the consumer with a bad score already being factored in.
However, not every short sale is worse than being foreclosed on. The article says that if a consumer is considering a short sale and is at the point of making the transaction, then their credit score wouldn’t drop as much as if they did not make their mortgage payment for six months.