Those that are stuck in a house they can't afford are often looking for a way out.
But one way that shouldn't be considered, says the Minneapolis Star-Tribune, is a short sale. There are a lot of ads online posted by people that want to buy houses for less than they're worth, and while it might seem like a quick fix, it can be just as bad for a credit score as being foreclosed on.
"Both short sales and foreclosures are considered negative by the score, because our data shows us it's very predictive of future credit risk," Tom Quinn, of Fair Isaac, told the paper. "The claim that doing a short sale is not going to hurt your score is false. It's inaccurate."
In both cases, the article says, banks will be wary of those that short sell because that person forced the lender to lose a lot of money.
One company that calculates credit scores says that a short sale will create a drop of between 120 and 130 points on the credit score of a consumer whose record is clean otherwise, the article says. And with foreclosures, the credit score hit can range from 130 to 140 points. And for those with spotty credit records, the drop for short sales is 15 to 25 points as opposed to 10 to 20 for foreclosure. The difference in the drops obviously stems from the risk in loaning to the consumer with a bad score already being factored in.
However, not every short sale is worse than being foreclosed on. The article says that if a consumer is considering a short sale and is at the point of making the transaction, then their credit score wouldn't drop as much as if they did not make their mortgage payment for six months.
One expert told the paper that, even if a consumer is able to dig out of foreclosure and save their house, their score will be very damaged, calling the impact a "major hit."
And according to the San Francisco Chronicle, the number of foreclosures is going up even for those in more upscale homes. In the San Francisco region, about 1,000 homes were repossessed in each of the last two years. The rate of foreclosure this year is on roughly the same pace.