If you are at least 38 years old, the phrase “one bad apple” brings back some memories. Go ahead and finish the song. Sing it out loud. It will bring back great memories and most of you will feel good all over because that is how we felt in the 70’s. “One bad apple don’t spoil a whole bunch girl; give me one more try before you give up on love.” That song caused many people to ask this question in regards to so many different situations in life “does one bad apple spoil the whole bunch or does it not?” We also ask that question when it comes to some of our financial decisions in our past, present, and wonder about our future.
In a market where foreclosure and what we nicely call “pre-foreclosure” is becoming common place, that question is prevalent. Does one bad apple spoil the whole bunch Mr. Loan Officer? Some say it does spoil the “whole bunch”…your whole credit history. Some say short sale is a better option to foreclosure and it won’t hurt your credit “that bad”. What is “that bad?” Maybe Donny Osmond knew the answer to that question. Maybe the loan officer will give us one more chance on a loan. The average foreclosure will take 200-300 points off a person’s credit score. This means if a person has a 620 prior to foreclosure, they will drop from 420 to 320 afterward. Consequently the numbers for a short sale come up identical. The ding on the credit report shows up as pre-foreclosure in redemption status resulting in a loss of 200-300 points. However, banks judge the two differently so your chance of buying another home after a couple of years is much more realistic post short sale.
When facing foreclosure, many people think that saving their credit is out of the question, but don’t throw in the towel so quickly. Make sure you do your research. There are definitely ways to make sure this unfortunate situation doesn’t plague your entire financial future. Call your mortgage company and find out what the “spoiled” apple will do to your batch of apples, meaning your credit history and how long it will affect you.
