Which Is Worse, a Short Sale or Foreclosure?

Q. I'm behind on my mortgage payments. Will the impact on my credit score be less if I unload my home through a short sale rather than going through foreclosure?

A. In a short sale, the lender agrees to a sale for less than what's owed on the mortgage. Many people assume that this method of exiting a delinquent loan will do less harm to a credit score than a foreclosure. But score provider FICO says the impact is the same.

See also: Find your true credit score.

For example, if you start with a score of 720, you'll drop to about 580 either way, and it will take seven years or so to recover to your previous score, assuming you maintain good credit practices going forward.

One difference, though: Your score may begin to rebound faster with a short sale than with a foreclosure.

You may also like: Stage your home to sell. >>

Sid Kirchheimer writes about consumer and health issues. Have a question for Sid Kirchheimer about a new product, a new kind of bank account? Check out the Ask Sid archive. If you don’t find your answer there, send a query.