Will a Short Sale Hurt My Credit?
How to Minimize Damage
Will a short sale have a negative impact on your credit? Yes. The good news is that a short sale will typically have a less negative impact on your FICO score than a foreclosure or a bankruptcy.
Credit scores and the impact of specific credit events on FICO scores are essentially impossible to predict. The general consensus is that a short sale will prevent an otherwise creditworthy individual from being able to purchase another home for about 2 years. In comparison, a foreclosure will extend that time frame out to as long as 7 years. These are anecdotal generalizations. To my knowledge, there is no hard data to support either of these claims on a large-scale basis.
The actual short sale is not what causes the most damage to credit. Instead, it is several months of late payments that can actually penalize a homeowner the most. This is why it is a good idea to discuss the situation with the lender prior to making a decision on how to proceed with the short sale.
Keep in mind that many people who are going through a short sale situation have stopped paying other creditors as well. For these people, the resulting impact on their credit score will of course be much more severe, but this is for reasons in addition to the short sale, not because of the short sale.
In some scenarios, we can negotiate a settlement with the lender in which the short sale will go unreported on the credit report, but this is the exception and not the rule.
>> More questions? Read our Sellers FAQ.