Q: What is a strategic default?
A: A strategic default occurs when a homeowner who appears to have the ability to pay for their home nevertheless decides to stop making mortgage payments, yet continues to keep up with other financial obligations, such as credit card bills or auto loans. In addition to being underwater – or owing more on their homes than the properties are worth – strategic defaulters typically have better FICO scores, larger mortgages, and smaller amounts of credit card debt, according to a FICO study. Strategic default can have a significant negative impact on your credit score.
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