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Impact of a loan default on your FICO score

May 15, 2012 by · Leave a Comment 

If you are considering defaulting on your mortgage, consider the impact of such an action on your FICO score. We looked into the impact of this action on FICO score and here’s what we learned.

FICO (Fair Isaac Corporation) score is the well-known and widely used credit score in the U.S. FICO score is based on payment history (35%), amount owed (30%), length of credit history (15%), new credit or searches for credit (10%) and types of credit used (10%). The score ranges between 300 to 850 and 60 percent of the people falls between 650 and 799.

If you have an excellent score of 780, a foreclosure of a home mortgage will result in reducing the score by about 120 points. A foreclosure could stay in your credit history for seven years. During that time your FICO score will be increased gradually provided that you have no other negative instances reported. If your FICO score is 680, a foreclosure will cause your score to drop by 100 points and will take only three years to get back to 680 provided that other factors remain unchanged. FICO score between 720 and 740 are considered preferable by most of the lenders.

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