Homeowners who find themselves struggling with mortgage payments and unsure how to handle the situation—short sale, foreclosure, or walk away—are advised to consider the impact of each on their credit scores.

Loan modifications that roll late payments and penalties into principal debt owed on the house can actually increase borrowers’ scores modestly, while refinancing underwater mortgages may have little or no negative effect on credit scores, according to Vantage Solutions, a scoring company created by the three national credit bureaus.

Short sales on the other hand can trigger large declines in credit scores, according to researchers.  A homeowner with an excellent credit score might see a 120 to 130 point decline after a short sale.

Homeowners who choose to walk away from the home and stop payments altogether should expect their credit scores to fall 140 to 250 points, plus negative marks on their credit bureau files for up to seven years.

People filing for bankruptcy protection covering all their debts will get hit with an average 355- to 365-point drop in their scores.  Bankruptcies remain on borrowers’ credit bureau files for 10 years.

But there is good news.  Homeowners facing financial stress can experience minimal declines to their scores if they contact their loan servicer or lender when they first discover that they may have trouble making their monthly payments.

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