FICO Reveals Impact of Mortgage Delinquencies

You have to love it when the boys and girls in San Rafael, CA take the time to crank out statistics like the ones they produced Wednesday morning (3/24/11).  FICO has revealed the results of their research into how certain mortgage delinquencies impact the scores of 3 unique consumers groups…those starting with FICO 680, FICO 720 and FICO 780.

The credit scoring giant, and my former employer, teased us last year with similar data but this time they set a new standard with their willingness to provide direction on the impact of mortgage indiscretions, such as the often misrepresented impact of a short sale.  They also capped it off with data on how long it takes for your FICO scores to recover from the same negative events.

Has your score suffered because of mortgage delinquencies? Visit here to see your credit report and credit score online now

Executive Summary

Let’s start with the most common and worst of all the mortgage delinquencies on your FICO scores;  bankruptcy.  Not only does the filing of the bankruptcy damage your score but so does the litany of debts that are going to also show up as being included in the bankruptcy.  You get hit with the incident first and then the breadth of the incident.  FICO 680 becomes FICO 530-550.  FICO 720 becomes FICO 525-545.  And, FICO 780 becomes FICO 540-560.

And now, for the umpteenth time, short sales.  Mortgage delinquencies like a short sale with a deficiency balance (which they all have because that’s what a short sale is…a settlement for less than the full amount due), has the SAME impact as a foreclosure, regardless of where your score starts from (680, 720 or 780).  The following is the impact of both a short sale and a foreclosure; FICO 680 becomes FICO 575-595.  FICO 720 becomes FICO 570-590.  And, FICO 780 becomes FICO 620-640.  There is a slightly higher score result if there is no deficiency balance but you’d have to convince the lender to not report that balance, which of course would be incorrect credit reporting.  The following is from the FICO website charting the impact described above and other scenarios.






How Long For Your Score to Recover?

FICO’s data also includes “how long to recover” output, which is especially helpful for consumers who have already gone through some sort of mortgage related disaster and are wondering how long it will take for their FICO scores to claw their way back.  I’ll save you the suspense, it takes a LONG time for your FICO scores to fully recover from a negative mortgage event.

In terms of mortgage delinquencies, if you paid 30 days late, it takes a 680 nine months to recover.  It takes a 720 2.5 years to recover and it takes a 780 3 years to recover.  Kind of underscores the importance of paying your mortgage on time.  And, it also illustrates just how damaging the loan modification trial payment period can be if you’ve got great FICO scores.  If you did a short sale or foreclosure your 680 would take 3 years to recover and your 720 and 780 would take 7 years to recover.  That means while the item is on your credit reports your scores will not fully recover (evidence of a short sale or foreclosure remains on a credit file for 7 years). The following is from the FICO website charting the time to recover from certain scenarios.







A couple of observations that might not be immediately obvious…

– Better scores fall further (raw point difference) and take longer to fully recover.  This is because score movement is like water, it takes the path of least resistance.

– The amount of time for a 680 to recover from a bankruptcy is as little as half the amount of time it takes a 720 and 780 to fully recover.  This is because those stratospheric FICO scores require pristine credit files, and 680s do not.

– If you can convince your mortgage lender to NOT report the deficiency balance to the credit bureaus after your short sale your score will actually be a little better than if they do report the balance.  Good luck on that one.

The moral of the story…don’t miss payments!!

Has your score suffered because of mortgage delinquencies? Visit here to see your credit report and credit score online now

John Ulzheimer is the President of Consumer Education at, the credit blogger for, 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, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.



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