A foreclosure on your credit report can take 7-10 years to remove. A foreclosure may also cost your credit rating or FICO Score upwards of 200-280 points. This is a significant hit on your credit.
If no better alternatives are available to you, then you want to consider aggressively pursuing a short sale and avoid foreclosure.
The credit consequences of a foreclosure and short sale vary. The general consensus is that a short sale will show up on your credit report as a “settlement”, “settlement for less than owed” or a “pre-foreclosure in redemption”.
It used to be that most lenders would not consider allowing a short sale until a few payments were actually missed. Because of this, you may also have a few “late payments” reported to the credit bureaus.
The market is ever-changing and many lenders today will consider a short sale if a homeowner can demonstrate a “hardship” or “impending hardship”.
Marks such as late payments and a short sale are not necessarily good marks to have on one’s credit. However, it is possible to organically restore one’s credit following a short sale within a couple of years. A short sale may impact a credit score by 80-100 points.
There is also the possibility through negotiation with the lender that you can avoid having the short sale reported to a credit agency. This is another important factor in choosing who you hire to manage a short sale.