There appears to be quite a bit of confusion with consumers and mortgage professionals about how FICO® Scores consider and treat the reporting of a mortgage related short sale. In fact, I have seen and heard it be claimed that a short sale is not considered negative by the FICO Score.
Simply not true.
To set the record straight, the reporting of a short sale (as outlined by the CDIA reporting guidelines) would be considered negative by the FICO® Score. The exact impact of the reporting of a short sale on a credit score depends on a number of factors:
- Whether or not the servicer reports the agreement to the short sale to the credit reporting agency.
- What information is reported regarding the short sale.
- The overall composition of the consumer’s credit report.
- The impact on score will not be as noticeable for consumers whose credit files already included missed payments/carry heavy debt loads.
- Conversely, the downward impact on score will probably be more noticeable on consumer files with no other delinquency/derogatory items and relatively low debt levels.
In short, the short sale matters.