Many times people will ask me “how much will my credit score drop if I have a short sale? What if I have a foreclosure?” and usually, my answer was something like  “it will hurt your credit, but no one can really tell you exactly how much it will hurt your credit.”

Until now.

Fair Issac Corporation (FICO) has just released some of the top financial missteps that people make regarding their credit and exactly how much each one can impact their credit score. FICO did this to help educate people about their overall credit profile and give them an idea of what kinds of things can negatively impact their credit score.

A few highlights of the common mistakes people make and how many “damage points” they can expect:

If your credit score is currently 780:

• Maxed out credit card – 25-40 points
• 30 Day Late Payment – 90-110 points
• Debt Settlement – 105-125 points
• Foreclosure – 140-160 points
• Bankruptcy – 220-240 points

If your credit score is currently 680:

• Maxed out credit card – 10-30 points
• 30 Day Late Payment – 60-80 points
• Debt Settlement – 45-65 points
• Foreclosure – 85-105 points
• Bankruptcy – 130-150 points

According to FICO spokesman Craig Watts:

“I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble. Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. ”

With the revealing of at least part of their overall FICO formula of how your credit score is calculated, one thing that is now known is that those people who have excellent credit have more to lose with a mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.

It appears as if FICO is making steps toward making your credit score more transparent – so that you can not only have access to your credit score, but you can also now know what kind of damage you can do to it by making a mistake.

The more a homeowner is underwater on their mortgage, the more likely it is they’re going to walk way from their loan despite their credit score, as Justin McHood recently wrote here at Mortgage Loan Place. 

Now, a University of Arizona law professor has a controversial take on strategic defaults, going so far as to suggest that homeowners should default on their mortgages and not feel bad about it.

“Millions of U.S. homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages,” writes Brent T. White in his paper, Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis. “Homeowners should be walking away in droves. But they aren’t.”

White says many people continues to pay on their mortgage loans because they are concerned about the shame and embarrassment that comes with defaulting and going into foreclosure. He also says that a person’s credit will take a big hit after going through a foreclosure, but that shouldn’t keep him or her from strategically defaulting. 

“But assuming one had otherwise good credit, and continues to meet other credit obligations, one can have a good credit rating again – meaning above 660 – within two years after a foreclosure,” he writes.

He even advises people to make large purchases, such as a car, another home, or other items they need to set up a new residence. ”Most individuals should be able to plan in advance for a few years of limited credit.”

Of course mortgage lenders and many others disagree with White’s advice. ”Borrowers who walk away from their mortgage obligations face serious consequences,” Fannie Mae spokesman Brian Faith told the Washington Post.  “There’s a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community.”

What do you think? Is White’s advice urging homeowners to strategically default irresponsible?

The term “Strategic Default” has been actively reported on for the last few months as more homeowners who can afford their mortgage payment just “walk away” for various reasons.

And the #1 reason they walk away is because they owe more than the home is worth.

And according to the latest research, the larger the negative equity, the higher the chance of someone defaulting on their mortgage no matter what their credit score is.

According to a story in the LATimes regarding the Strategic Default problem:

But research by three academics suggests that the willingness of people to default depends largely on just how far underwater they are. Or, as the study’s authors put it, “People default because of the size of their negative equity, not just because they cannot afford to pay.”

And when the shortfall is between 10% and 20% of their home’s value, Luigi Zingales of the University of Chicago, Paola Sapienza of Northwestern University and Luigi Guiso of the European University Institute found that just 5% of the owners they sampled would quit. Even when the difference reaches 50%, only 17% said they would throw in the towel.

And it appears that at least one factor when making the decision to default or not when you can afford your mortgage is how many of your neighbors are doing it.

Then there is something the study’s authors call a “multiplication effect,” meaning that the social pressure not to default is weakened when the borrower lives in an area with a large number of foreclosures. The predisposition to run away increases with the number of foreclosures in the same ZIP Code, the study found.

Lastly, many homeowners are finding that the banks are “just asking for more foreclosures” because they are not working with homeowners as much as they could.

Deede Wockenfuss of CybrSold Concepts in Chandler, Ariz., has had several clients who tried to no avail to work with lenders to get their loans modified. “The bank is asking the borrower to default,” she said.

When push comes to shoving your loved ones out the door, Bob Hunt of Keller Williams O.C. Coastal Realty in San Clemente says the moral duty to protect your family outweighs the moral duty to repay the loan.

Regardless of whether someone can afford to pay their monthly mortgage payment, one thing is clear: the more that their house is “under water” the greater the chance is of them defaulting.

No matter where they live.