Q. How will a foreclosure affect my credit score? And how long will it take to recover?

A. The answer all depends on your score at the time of foreclosure.

Fortunately, FICO, the company responsible for our current credit score model, just completed a study that simulates how various types of mortgage delinquencies can affect one’s credit. FICO was nice enough to let us publish the study as part of this week’s Credit Q&A.

To complete the study, FICO simulated five types of mortgage delinquencies – 30 days late, 90 days late, deed-in-lieu settlement, short sale and foreclosure – on consumers scoring 680, 720 and 780, respectively. Prior to the delinquency, all consumers had an active currently-paid-as-agreed mortgage on file.

Other facets of the consumers' profiles (e.g., utilization, delinquency history and age of file) were typical for the three score points considered.

As you can see, the higher your score, the harder it falls and the longer it takes to get back to where it was before delinquency.

“You can start to see improvement before then, but it takes longer for a higher score to fully recover,” Joanne Gaskin, who wrote about the study on FICO’s Banking Analytics Blog earlier this month, tells MainStreet.

According to Gaskin, the study was done because FICO wanted to clear up a common misconception consumers have about how mortgage delinquencies affect their credit score.

“People try to persuade consumers to believe that a short sale will have significantly less impact on their score than a foreclosure will,” she says, but “there’s very little difference from a FICO perspective.”

As the chart illustrates, both types of delinquencies cause each prospective consumers’ score to plummet the same amount of points. Consumer A, who has a 680 credit score, will take around an 85-point hit. Consumer B, with a score of 720, will take around a 150-point hit. Consumer C, who is among the credit elite, will see his score drop around 160 points in either instance.
It will take about three years following either a short sale or foreclosure to return to your score of 680, and seven years to get up in the 700s—if you don’t incur more delinquencies.

As Gaskin explains, delinquencies include more than just missed payments on a mortgage. You can’t start defaulting on your credit card bills or start ignoring your auto loan.

“Your profile would have to go back to being what it was [before foreclosure],” she says.

Want to know what affects your credit score? E-mail your questions to MainStreet at editors@mainstreet.com.

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