A lot of homeowners are considering a deed in lieu of foreclosure and want to know how a deed in lieu affects their credit?

There are three credit bureaus that are important. Much of what accounts for your ability to get credit is your FICO credit score. FICO is a credit analysis company that applies a certain formula to summarize your credit as a single number.

What you want is a credit score of 720 or better. The formula is based upon your payment history, how much you currently owe (to lenders that report), length of time accounts have been opened, how many new accounts, and a few other factors.

The credit bureaus collect information in two major ways. One is from merchants and banks who subscribe to their service and report on their customers. The other is from public records.

(By the way, this is a great time to join my exclusive list by putting in your first name and email. Your info is never shared with anyone and you can unsubscribe at any time with one click. You will get instant access to my famous 25 page report Keep Your Home, and learn how to lower your mortgage payments without new loans, about credit and deed in lieu of foreclosure, about inside information on how to avoid bankruptcy or how to do bankruptcy so it damages you the least, and much more.)

A foreclosure is a public record. So is a bankruptcy filing. So is a judgment. And a tax lien for IRS or sometimes state income tax. Property tax delinquencies are generally not reported, nor are business debts and mortgages for investment properties.

A deed in lieu of foreclosure affects your credit score because the mortgage company reports it, usually as a foreclosure. Deed in lieu drops your credit score like a foreclosure drops your credit score.

Of course, there are things you can do. One is you can negotiate with your mortgage company when you are negotiating the deed in lieu. The negotiations are in two areas, how they report the deed in lieu to the credit reporting companies, and how any deficiency is handled.

The best reporting that your mortgage company can make is "PAID - SATISFACTORY" about your loan. Even a "PAID - SETTLEMENT" isn't too bad compared to foreclosure.

There is also a little known option called unrated, non rated or R0. It can actually help your credit and it is not a lie. The mortgage company can report you as R0 and you can do your deed in lieu. Make sure you get a written agreement that the mortgage company will not go after you for any of their financial losses. You can get a deed in lieu and buy another house if you do it this way.