Will a Short Sale Affect My Credit?

People ask me all the time "How will a short sale affect my credit?" and my response is always, "Negatively". I know that's not a very good sales response, but it's the truth. Almost always the subsequent question is, "How low will my score go?". Anyone that gives you a range without asking more questions has never studied credit before and their answer should be discounted.

If you are searching for an answer to this question on the web you will get so many conflicting responses that you'll have a hard time deciphering which is true. I have been in the banking business for years studying and analyzing credit, and I have given multiple seminars on how to improve and manage your credit. The one thing I know for certain is that any lender that takes a loss on a property is going to report the derogatory remark to the credit bureau. It is typically reported as a 'narrative' today and does not have it's own category like bankruptcy or judgments. A short sale WILL affect your credit score - don't let anyone tell you it won't.

Most websites that I visit are misleading because they give you a direct answer to this question and it's simply not that easy to answer. A short sale is another form of foreclosure, and depending on several factors it can have dramatically different impacts on your score.

Your score is made up of five factors with varying weights:

Payment History - 35%
Amounts Owed - 30%
Length of History - 15%
New Credit - 10%
Mix of Credit - 10%

So when someone asks me how it will affect their score I have to know the following in order to give a better estimate (its only an estimate - no one knows the exact impact):

- Do you have any other derogatory credit on your credit report, or have you missed payments on your other obligations?

- How many revolving lines of credit do you have (credit cards)? What are their balances? What are their limits?

- How long have you been managing credit? Have you recently closed any of your credit cards?

- Have you been shopping for additional credit within the last 12 months (i.e. car, credit card, etc)

I ask these questions because they give me a better understanding of how well credit has been managed to date. According to FICO, the architect of the credit score, a foreclosure will have varying impacts depending on the management of the rest of the credit. http://www.myfico.com/CreditEducation/questions/foreclosure-fico-score-a...

I tell people who are considering a short sale that it is better than a foreclosure as far a your credit is concerned. Here's why, with a foreclosure (especially in Florida) it is taking 14-19 months to foreclose depending on how backed up the county is. During the course of foreclosure your mortgage continues to report as severely delinquent on your credit report, thus damaging your score throughout. However, if you decide to short sell there may be similar impacts on your score at the time of sale, BUT you are starting fresh from that point and not going through 19 months of derogatory credit and then starting fresh. This is a BIG difference.

If you are considering selling your house and need assistance please fill out our quick form and we'll get back to you shortly.

J.D.A.