How a Short Sale Affects Your Credit
I’ve been asked several times by Daytona Beach homes sellers about how a short sale will affect their credit scores. Each situation is different, but there are a few common points that you need to know.
Late Mortgage Payments
If your lender has reported you as late in making payments, your credit score has been negatively impacted before the short sale. This may have even more impact that when the short sale is recorded.
Other Payments
If your credit card, car loan and other loans are up to date, the impact of the late mortgage payments will be less than if you have missed payments on all your deblts.
The Short Sale
The short sale will have an impact on your credit score, but not as much as a foreclosure or bankruptcy. The short sale is recorded as “paid settled” or something similar that shows that the loan was settled, but not at the full amount. There is one of important consideration affecting the impact of the short sale on your credit – the foreclosure process. If the lender has filed a “Lis Pendens” or notice of default or a foreclosure notice, then that will lower you credit score further.
How Long?
How long will it take your credit score to recover after a short sale? Again, if the short sale is the only blemish on you credit record, then the impact will be less. If you have other negative reports the impact will be worse. Your score will bounce back much quicker than a foreclosure or bankruptcy, but it is critical that you make all other payments on time and have no other adverse reports against your credit.
In summary, the short sale will impact your credit much less than a bankruptcy or foreclosure. The impact will be less if you were not late on payments before the short sale, but my experience says that it is difficult to do a short sale unless payments have been missed. Keep you other payments current to limit the negative reports to the short sale only.
There a really good article over at the LA Times on credit scores. Go to Mortgage problems are walloping Americans’ credit scores for more.
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[…] under the loan without the more negative impact of a foreclosure on their credit scores. However a short sale does affect your credit score. The buyer can benefit from a home that sells well under the average market value. In other words, […]