As more and more people face the prospect of losing their home in the midst of this economic whirlwind, we are getting more questions about foreclosures and short sales, and how they show up on credit reports.   

WHICH IS WORSE: A FORECLOSURE OR A SHORT SALE?
Strictly from a credit rating stand-point, they are about the same.  According to Fair Isaacs Corporation, creator of the FICO scoring formula, any of these items reported for an account on your credit will have a negative impact on your scores:
Foreclosure
Foreclosure Proceedings Started
Deed-In-Lieu Of Foreclosure
Settled
Settlement Accepted On This Account
Paid Not As Agreed
Paid For Less Than Full Amount

Any reporting that is not "Paid As Agreed" or "Current" is going to be a negative mark against the scores.  Additionally, when an account is delinquent to this point, there are usually several late or skipped payments reported, which are already hurting the scores, regardless of which type of foreclosure designation the account is given.  This previous article has more info.

CAN A FORECLOSURE STAY ON MY CREDIT FOREVER?
No.  It doesn't matter how it is described, an account in foreclosure is subject to the same reporting time limits as any other account.  The late payments stay on no longer than 7 years from the time they occurred. 

The charged-off, settled, or foreclosed account may stay on for  up to 7 1/2 years and if it goes to court for a deficiency judgment, that judgment can stay on credit reports for 7 years from the filing date or until the governing statute of limitations has expired, whichever is longer.  Read more about how long items can stay on your credit here.

IS THERE ANYTHING I CAN DO TO HELP MY CREDIT?
You can try to negotiate for your credit rating while you are negotiating with the lending company on the settlement or short sale details.  Request in writing that the account be listed as "paid as agreed".  The worst that can happen is they say no and it gets reported anyway.  The best that can happen is that they help you out and agree to it.

HOW LONG AFTER FORECLOSURE UNTIL I CAN GET A LOAN?
Previously, most lenders' guidelines were at least two years after a foreclosure before they would consider another loan.  Well, as we are all aware, these are not usual times.  And there are certainly many more people from all walks of life facing mortgage crises.  So it is not easy to say what the lending guidelines will be next month or next year.

The best thing to do is keep on top of your other bills.  If the foreclosure is the only negative item on your credit report, it is much easier to rebuild your credit than if there are several delinquent accounts that end up in collections or judgments.  Remember that even companies such as utilities, cable, and phone that do not normally report to the credit bureaus often DO report when accounts go delinquent.  Try to pay all your bills on time as it is the number one factor in credit scores.

Be sure to check out these mortgage and foreclosure links for more information about available help.