Are you really in a serious rut if you are unfortunately hit by foreclosure or short sale? When you are faced with foreclosure or short sale, the first thing that you must look into is your Beacon score. You have to understand that a foreclosure can lead to a 50 to 250 range drop in your credit score! This is an aggregate result of delinquent mortgage payments and the foreclosure of the property. The actual point loss is a function of your payment history and the ultimate impact of the foreclosure. Thus, if your pre-approval beacon score is 750 and foreclosure happens, it can lead to a maximum drop of 250 points. On the other hand, a 500 beacon rating may result to a mere 50-point drop for the same derogatory record.

This means that those with “higher” beacon score stand to lose more than those with lower credit score for the same derogatory record. It seems that they are being “penalized” more for having a better credit record. If your real estate property is foreclosed, you are looking at a 5 – 7 year waiting period before you can be able to qualify for another home purchase. This is based on the assumption of a lower range of your beacon score of at least 680 and 10% equity on the home purchase as down payment.

It is also important to note that a deed in lieu of foreclosure can have the same negating effect on your beacon score as that of a foreclosure. However, the real impact of this type of deed instrument will entirely depend on how credit bureaus consider the event. Credit bureaus have the prerogative whether to report deeds on the same terms as foreclosures or not, and when such incidents are reported as such, expect the same negating effect on the beacon score as that of a typical foreclosure.

Here are the following critical issues that you have to negotiate with your lender in as far as credit reporting of your deed in lieu is concerned:

• Paid as per Agreement – Your beacon score has already dropped by more than 100 points as a result of payment arrears. However, if the event is reported as “Paid as Agreed,” then you will be able to qualify for another home purchase for a shorter span of time than you would normally spend as a result of a foreclosure.

• Paid Settlement – This will result to a 75-100 point range drop in your beacon score. This is on top of the points drop as a result of prior payment delinquencies.

• Foreclosure – This will result to a 100-point drop in the low range and a 150-point drop on the upper range. This is also on top of the points you will have lost as a result of prior payment delinquencies.

One of the major advantages of deed in lieu of foreclosure is that you are able to qualify to purchase a new home after 4 years which is shorter than the waiting period applicable to those home buyers who have had their beacon score reduced due to foreclosure. Under existing guidelines, you are only required to have 10% equity in the home purchase as your down payment. Thus, if you are looking for a less “painful” alternative to foreclosure then this deed instrument may just be the right thing for you.

There may even be cases where the FHA will decide favorably on the applications of applicants who have lost their old homes through foreclosure, deed in lieu or short sale. Certain extenuating issues can be factored in and you may be cleared for a new home purchase after a shorter waiting period.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Beacon Scores FAQ:

Question: What is the difference between the Beacon score and Fico score?
I know that FICO is an independent company that issues the summary score to the three major Credit bureaus that ranges some where between 400’s to 850. What is the top/bottom beacon score?

Answer: FICO is the company that made the software that the 3 major credit bureaus use to score credit based on what each one of them has in their database about a person. Each bureau names them differently, but they are ALL “FICO” scores. It is a generic name. The bureaus name their brand of FICO score as follows: Beacon, Empirica, Fair Issac (FICO=Fair, Isaac & Company named after the founders, Dr. Fair and Dr. Isaac).

FICO scores from 300 to 850 with anything calculating to below a 300 defaulting to a 0. Equifax shows a beacon score which is the same as FICO.

Scores are based on the following factors:

1. Payment history 35%
2. Time in bureau 15%
3. Types of credit 10%
4. New credit 10%
5. Debt to credit ratio 30%

Question: How can I find out what my beacon score is?
A credit report I have just received for free from Equifax does not show my beacon score. By the way, I live in Canada.

Answer: You will have to go back to Equifax Canada and pay for your credit score.

Question: Is there any place to get a sub prime loan with beacon scores at or below 500?

Answer: With a beacon that low, maybe not, but even so, why would you want one, the interest rates are going to kill you. Rent for a couple more years until you work to get your beacon higher. The money you save from your high interest mortgage can be used to pay off old or bad debt and at the same time your beacon score will go up. In the long run, it is the best way to go.

Question: If somebody has a beacon score of under 450. How would they obtain credit for a new business?
A friend of mine is starting a new business she thinks her credit score is between 450-500. She wants to open a new small business but does not know where to start with getting help to do so. She applied for her tax id number and her business license.

Answer: With that score she either has NO credit or a VERY, VERY lousy credit history which will get her nothing in the way of a loan. If she just has lousy credit why not clean it up before taking on a new business which, statistically, is domed to fail and she ends up with a boat load of new debt. If it is due to a lousy credit history she is just confirming she is really a very high risk at failing because she can not even take care of business on a personal level.

Question: Credit inquires hurt your beacon score anymore?
I keep hearing that has changed this year. I knew all hard inquires hurt your beacon in the past, but has it really changed this year?

Answer: Not true. However, loan inquiries for certain things have reduced their impact. For example, if you have 6 inquiries for auto financing with in a two week period it will only effect your score as one inquiry.

Question: Will “monitoring” my credit make my beacon score go down?
I friend recently told me that if I sign up for a credit monitoring service and regularly check my credit reports, my beacon score will go down each time as though a potential creditor were running my report. Is this true? Or do potential creditors know that it is me that is looking at the credit? Basically, if I frequently check my credit through one of these services, will it make my credit worse?

Answer: Monitoring your own credit report through a credit monitoring service will not cause your credit score to go down. This is considered a “soft” inquiry. Only you and the credit bureau see these type of inquiries. A “soft” inquiry may also include these scenarios:

1. Your credit card company checking your credit to see if you qualify for a credit line increase.
2. Credit card/loan companies checking to see if you might qualify for credit with them. If you qualify, they will send you an application.

Only “hard” credit inquiries will affect your credit score. This is when you actually apply for a credit card or loan. These type of inquiries are seen by a potential lender when you apply for credit.

Question: Typically, how many positive credit points will be added to my beacon score with an on-time mortgage payment?
If I am over 30 days late, I know that dings my credit- but on average how many points does it go up WITH a ON-TIME mortgage payment? Or does it?

Answer: Since the exact calculations used by F.I.C.O. are a closely guarded secret it’s impossible to actually answer this question. I can tell you that a mortgage paid as agreed over a long period of time is the single best thing that can show on your credit as far as score and profile go.

Question: How is your beacon score decided, what factors are included?

Answer: There are three credit bureaus and each has its own score calculation based on the information reported to them. Not all creditors report to all three bureaus, and some don’t report at all.

Your score is based on what is reported to your report. There is no formula or “deduction of points.” Your pay history, account balance, types of accounts, and types of creditors all affect your score. How they affect your score differs for each person, based on what is being reported.

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