Does a short sale hurt your credit? If you’re facing financial hardship and don’t think you can keep up with your mortgage payments, a short sale can allow you to avoid a foreclosure. However, short sales do come with negative consequences to your credit score.
In this post, our team at Your Home Sold Guaranteed Realty - Barb Has the Buyers Team will discuss how a short sale can affect your credit score and whether it’s better to go through a short sale than a foreclosure. We’ll also explain what you can do to improve your credit score after a short sale.
Key Takeaways:
- A short sale does hurt your credit score. On average, your score could drop anywhere from 85 to 160 points. However, the extent of the impact depends on a couple of factors.
- Individuals with higher credit scores may experience a more significant drop in their scores than those who already had lower scores to begin with.
- If you missed a significant number of mortgage payments leading up to the short sale, you might see a more severe impact on your credit score.
Does a Short Sale Hurt Your Credit?
A short sale is when a homeowner sells their property for less than the outstanding mortgage balance. The homeowner’s lender needs to agree to a short sale before the process begins since they aren’t receiving the original loan they were owed.
A short sale does hurt your credit score. On average, your score could drop anywhere from 85 to 160 points. However, the extent of the impact depends on a couple of factors.
For example, your credit history. Individuals with higher credit scores may experience a more significant drop in their scores than those who already had lower scores to begin with.
Another factor that affects the damage to your credit score is your history of keeping up with mortgage payments on the home. If you missed a significant number of mortgage payments leading up to the short sale, you might see a more severe impact on your score.
Are Short Sales Better For Your Credit Score Than Foreclosures?
Short sales and foreclosures can both do the same amount of damage to your credit score in terms of points. Despite the negative impact on credit scores, a short sale is generally considered less damaging than foreclosure or bankruptcy.
A foreclosure can result in a significant and long-lasting decrease in your credit score, making it more challenging for you to qualify for future loans or lines of credit.
In contrast, a short sale allows you to avoid some of the more long-term consequences associated with foreclosures while mitigating some of your financial losses.
An important consideration for how a short sale impacts your credit score is how the sale is reported to credit bureaus by the lender.
In some cases, lenders may report the short sale as “settled for less than the full amount” or “paid as agreed,” which can have less severe consequences for your credit score, especially compared to a foreclosure or bankruptcy.
For this reason, it’s crucial to understand how the short sale will be reported and to discuss potential implications with your lender.
Can You Improve Your Credit Score After a Short Sale?
The impact of a short sale on your credit score is not permanent. The record of your short sale will remain in your credit history for seven years, but you’ll be able to take steps to improve your credit score during that time.
With responsible financial management, consistently making on-time credit card or mortgage payments, reducing debt, and demonstrating responsible credit behavior, you’ll be able to rebuild your credit score over time.
You’ll also be able to buy another home much sooner than if you had gone through the foreclosure process.
Before deciding to pursue a short sale, you should weigh the potential impact on your credit score. Be sure to consult with a financial advisor or credit counselor to fully understand your options.
Sell a Colorado Springs House Fast with Barb Schlinker
By understanding the implications of a short sale and taking proactive steps to manage your credit responsibly, you can navigate the process with confidence.
At Your Home Sold Guaranteed Realty - Barb Has the Buyers Team, Barb Schlinker and our entire real estate team have been in the real estate business for 27 years. We’ve helped many clients sell their houses fast and for top dollar, and we’ve also handled many short sales throughout the years.
To learn more about working with us to sell a house in Colorado Springs or discuss short sales, call 719-301-1802 or fill out the form on this page. Take the first step to sell your house fast today!
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