I want to explore how your credit can be affected by deed in lieu of foreclosure or foreclosure.

Your banks and credit cards report to one, two or all three major credit bureaus, often every month. What they say about you affects your credit score. Although there are three major types of credit scores, each one from a major credit bureau, the one that most lenders use is the FICO score.

The best credit report about you is Paid Satisfactory, or Paid Never Late, Paid As Agreed, and Account Current.

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There are reports which are neutral. These include Paid, Refinanced, Account Closed by Credit Grantor, Account Closed by Consumer. Account Closed by Credit Grantor may not be positive with regard to a loan officer looking at the report but for credit score purposes it is neutral.

Now, let's look at negative reporting.

First, there are lates. Current was 30/60/90/120 days late. That is what is going to show up if you are late on your mortgage loan but catch up. Usually, to catch up, you need to pay all the past payments along with late fees and special charges such as foreclosure or legal fees. Otherwise the mortgage company will not accept any payments. Partial payments must be negotiated as part of a loan modification or workout agreement also known as a forebearance.

Then, as we get worse, there is charge-off, bad debt, delinquent, collection account. These are reports showing a condition of delinquency that is not going to change. It has happened already. However, that said, the credit grantor such as your mortgage company can in fact remove these and so you can negotiate with them on these as part of any workout, short sale or settlement.

Don't believe them when they say they can't remove these. They can.

And they can report "unrated" which is neutral and won't affect your credit score, but will remove any adverse reports they have made.

There are also public record reports and these include bankruptcy, wage garnishment, judgments (paid or unpaid), and liens. The worst is bankruptcy. When you file for bankruptcy this hits the credit report even if you do not get a debt discharge or even if later on the court dismisses the petition for bankruptcy.

Paid Settlement is adverse but not as adverse as many of these "bad" reports. If you are in foreclosure, or if you do a short sale, you may want the mortgage company to report Unrated, but if they will not, Paid Settlement isn't going to hurt you as badly as Foreclosure.

What I want you to understand with respect to deed in lieu of foreclosure credit score is this:

Foreclosure is what the home loan lender reports or a foreclosure or deed in lieu of foreclosure.

So I suggest if you are negotiating with the lender, first try for Paid. If they won't agree, go for Unrated. This is little-known but is neutral and much better than an adverse report. It can undo already reported lates that the mortgage lender has made.

If the mortgage company will not agree to Unrated, then go for Paid Settlement. It isn't nearly as bad as a foreclosure on your credit report.