How Will a Short Sale Affect Your Credit Score?

A short sale will affect credit scores.  It is a considered a pre-foreclosure and is less negative than a foreclosure reporting.  You can expect there will be damage to your credit score though. There are conflicting reports as to the amount of damage.  It also varies on each individual’s credit history and circumstances.  Approximately a third of your credit score is based upon your payment history, a third on how long you have had credit and a third on the amount of debt you owe.  A short sale can affect credit scores by lowering them from 75-200 points for some individuals and over 200-300 points for others.  Foreclosures and deeds in lieu of foreclosure can result in a drop of at least 200-300 points.  According to the Fair Isaac credit reporting scale, your credit score can be affected in the following manner:

• 30 days late payment:  40 to 110 points
• 90 days late payment:  70-135 points
• Foreclosure, short sale or deed in lieu:  85-160 points
• Bankruptcy:  130-240 points  

It may be possible to negotiate with your lender that they remove any current negative reporting and not continue reporting any more negative remarks after the short sale.  It’s worth asking.

What Happens After?

After a pre-foreclosure, you will probably be able to obtain a new home loan within two to three years under the new Fannie Mae and FHA guidelines. You still need to keep current on your other debts and maintain the required credit scores.  Pre-foreclosures and foreclosures stay on your credit 7 years.  Expect to pay higher interest rates on credit cards and loans after a short sale or foreclosure.   However, the good thing is you can repair and raise your credit score over time by managing your credit responsibly and making payments to your creditors on time.  

Credit Counselor

It is a good idea to consult with a creditor counselor to work out a plan to manage your debt and improve your credit.  Most offer their services free of charge.  They can help you negotiate a debt management plan with your creditors if you need to reduce your debt.

Speak with a Foreclosure Defense Attorney

It is always recommended that you speak with a foreclosure defense attorney before you decide to participate in a short sale so you can find out other options to prevent foreclosure. The attorney is experienced at negotiating short sales, and can negotiate with your lender and represent you in court.  An attorney can assist you in saving your home from a foreclosure.