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Dear Liz: I don’t know why credit scoring is shrouded in mystery. I’ve read that a short sale is as bad as a foreclosure, and elsewhere that it’s better, and still elsewhere that it’s much better. Which is true?

Answer: The leading credit scoring formula, the FICO, typically treats a short sale about the same as a foreclosure, said Craig Watts, spokesman for the company that created the score, which is also known as FICO.

Where a short sale is better is when it comes to getting your next mortgage. If you suffer a foreclosure, lenders typically put you in a kind of “penalty box” that makes it tougher to get another mortgage for up to seven years. That period is typically shortened to two or three years with a short sale.

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[...] Ask Liz Weston has a short and sweet answer to a great question for struggling homeowners to consider, What’s Better: Short Sale or Foreclosure? [...]