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How much does a foreclosure affect your credit score? What will a short sale do to your creditworthiness in the years ahead?

Vital questions, and this site has tried to address them. But it's an ongoing problem to give definitive and permanent answers. That's because the foreclosure and short sale world is changing, not just daily, but sometimes hourly.

Two days ago, I learned that an executive for the Fair Isaac Corporation (better known as FICO) said that a short sale might harm a person's credit as much as a foreclosure would. However, that can't be so. Among other things, a foreclosure is a matter of public record for ten years and a short sale is not even recorded as such. Moreover, some loan servicers do not report short sales (I'm told there's not even a line item for it), and instead show a loan discharged with a short sale as "paid in full."

What gives? We all just have to stay tuned while this financial market mess gets straightened out.

Meanwhile, a story from the Great Depression Era. My father, a distributor for Standard Oil, often had trouble paying his creditors. He'd had to learn many creative ways to put them off, but finally stumbled on one that worked every time. "I lost my money in the Wingfield Bank," he'd tell them. They'd nod, knowingly, and give him more time.

In that time, bank failures were widespread, and a great many people lost their cash (this was pre-FDIC insured deposits,after all).  Sure, nonpayment of bills because of it dinged people's credit, but because so many people had been affected by bank failures, it's derogatory effect was mitigated.

Some people believe the same situation will occur with short sales--that so many are affected, it's counter productive to overly penalize them for long.  In fact, you can get an FHA loan two years after experiencing a short sale. I'm betting other lenders will follow suit.

But of course, who knows what's coming down the pike?