How Long Does a Short Sale Stay On Your Credit Report?

How long does a short sale stay on your credit report?

It’s pretty cut and dried with foreclosures: they stay on your credit report for seven years … or more. However, it gets a little more complicated with a short sale. As with foreclosures, short sales remain on your credit report for seven years, although it’s not as cut and dried.

For example, if you were late on your mortgage payments, a short sale will remain on your credit report for seven years from the delinquency date. But if you were never late, the seven-year clock starts on the date it was marked settled or paid.

Nevertheless, thinking a short sale will have less negative impact on your credit score than a foreclosure is a common credit score myth. Bottom line: there is no way to avoid hurting your credit score with a short sale.

A seller’s credit score can take a hit of 100 to 150 points after a short sale.

In general, the effect of a short sale on your credit score is comparable to the impact a foreclosure has on your score. However, the damage to your credit score can vary, depending on how the lender lists the sale. Many times, short sales are recorded as “settlements” instead of “debt paid.” This is a clue that the lender accepted less than it was owed. That has a negative impact on your credit score.

If, on the other hand, the lender reports a short sale as “paid,” there will be less negative impact on your credit rating. It’s rare and usually only comes as a result of extensive negotiation. It helps if you never missed a payment, if your credit history is otherwise good, and if you provide a hardship letter outlining the extenuating circumstances. The FHA describes extenuating circumstances as “circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner.”

Any late payments on your mortgage that preceded the short sale will also have a negative effect on your credit, separate from the damage caused by the short sale alone. Keep in mind that a deficiency judgment will appear on your credit report in addition to the short sale, potentially adding to the credit damage.

How the short sale could appear on report

Reading a credit report gets confusing because a short sale probably won’t even be listed as a short sale. It’s more likely to be listed as:

• a derogatory mark
• a charge-off
• a settlement
• “settled for less than the full amount due”
• “not paid as agreed”

The term “short sale” won’t appear on your credit report.

Can you get a short sale removed from your report?

It’s not impossible to have a short sale expunged from your credit report, although Helali says it’s unlikely. Technically, there’s no law forcing creditors to report delinquencies on your credit history (other than missing child support payments).

If a creditor does report it, the creditor can remove it at your behest. The best approach is to write a letter to the creditor, asking them to remove the comment.

Another tactic is to report an error on your credit report if a short sale was mistakenly listed as a foreclosure. Because there is no code designating a short sale, some credit bureaus substitute the foreclosure code. If your credit report reveals such an error, you can contact a Fair Credit Reporting Act attorney to help you get it removed.

Be aware that even if you do manage to get the short sale removed from your credit report, Helali says it may still show up when new lenders conduct a background check.

How can I fix my credit after a short sale?

If you can’t get the short sale removed from your credit report, you’ll have to start rebuilding good credit the hard way. Be aware that it can take three to seven years, depending on how good your credit score was before.

Remember that your credit may rebound faster with a short sale than a foreclosure, Griffin notes.

Start by getting a copy of your free credit report from all three credit bureaus: Experian, TransUnion, and Equifax. Check for errors. More than 80% of credit reports have mistakes that hurt your score.

Your checklist should include the following actions:

• Look for debts owed by people with similar names and medical collections.
• Check the report for suggestions about how to get a higher score.
• Don’t close any credit accounts. The length of your credit history is helpful.

Other tips to help rebuild your credit rating include:

• Pay down debt as much as possible, especially on revolving accounts like credit cards. The debt-to-credit ratio is important to your credit rating. About 30% of your credit score reflects your credit card balance. Regardless of your income, lowering your credit utilization ratio will improve your score.
• Make all payments on time.
• Consider opening new accounts to establish good credit. (However, Helali says, it can be difficult to open new accounts in the immediate aftermath of a foreclosure.)
• Consider opening a secured line of credit to help improve your credit score. Secured cards and credit-builder loans are good options.
• Ask the lender for a 1099-C instead of a deficiency judgment. This is a cancellation of debt, and will make it easier to begin repairing your credit rating if you don’t have to cover the deficiency.
• Consult an attorney specializing in bankruptcy.

The best way to repair your credit, Helali says, is to “make your payments on time and keep your balances low.”

Griffin concurs, adding that establishing good payment history is vital in fixing your credit rating. But she has noticed over the years that if a person has been delinquent on their mortgage, they’re likely to be delinquent on other bills as well, so reestablishing good payment history is an uphill climb.