Foreclosing a home, conducting a short sale or handing a property over to a lender in exchange for the loan be cancelled can adversely impact consumers' credit scores. However, any one of these black marks is not necessarily worse than the other, according to Bradley Graham, senior director of scores product management with FICO.
"All of those events represent a loan default and as such are highly predictive of future credit risk," said Graham in an interview with the Washington Post.
However, he added that the impact of these actions may be less severe if the lender does not report to the credit bureau what the borrower owes after property is sold. This is called a deficiency balance.
The newspaper also noted a FICO study that gauged the impact of foreclosing on a credit score. It found that the higher a consumer's score was before the distressed property filing, the longer it took to get back to that same level.
If consumers are at risk of being foreclosed upon or are considering conducting a short sale, they may want to consult with a credit repair attorney first to get an idea of how badly it will affect their score.