How Short Sales Effect Your Credit

by October 28, 2009 • 2 comments

Many people don’t understand how a short sale will affect their credit.  The short sale itself does not harm one’s credit in any way.  It is possible to complete a short sale without having a major impact on the person’s credit.   We are going to go through several scenarios to explain short sale options and the ramifications of each scenario.

The largest impact to ones credit is the missed payments.  If someone is 30, 60, 90, or 120 days late on a mortgage, it will significantly impact their credit.  There is a misconception that one has to be  late on the mortgage to be eligible for a short sale.  This is not accurate.  It is possible to negotiate a short sale without missing any payments on the  mortgage.  If someone does this and converts the remaining balance due at closing to a signature loan, their credit should not be impacted in any way.  The credit report should show one of two following scenarios:

  • The existing loan shows “paid in full” and a new loan shows up with the remaining balance.
  • The existing loan balance is reduced and your payment is adjusted.

It is also possible to not miss a payment and have the bank write off the remaining balance.  This will affect your credit and the account will show that some sort of settlement was reached on the account.  Depending on the person’s credit score, they can expect a 50-100 point reduction in their credit score initially.

If one misses payments and reaches a settlement on the mortgage or mortgages then they are likely to see a much more substantial credit impact.  There are several advantages to completing a short sale if one is having financial challenges.  By relieving this debt, that person may put themselves in a position to keep  other accounts in good standing.  A short sale is also significantly easier to recover from than a foreclosure.  One can bring their credit score back up in a relatively short period of time after they have started making all their remaining payments on time.  This has a much smaller impact than the long term credit damages that a foreclosure or bankruptcy can create.

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1 Howell Hooper November 10, 2009 at 9:45 pm

The title should read “How Short Sales Affect your Credit”. Effect is a noun and affect is a verb and means to influence etc.


2 Jason Tibbets June 23, 2010 at 7:34 pm

The article was fine. I didn’t realize it was an article about proper English usage, grammar, and spelling. Anal retentiveness is not a good quality. You should stop going around correcting other people and focus on what the actual substance is.