short sale and credit
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How much will a short sale on your home hurt your credit?
Short sale or foreclose and kill your credit for a few years.
And that made me curious - how badly does a short sale or foreclosure hurt your credit, and for how long?
It's impossible to give a specific answer as to how much your score will decrease, because it depends on a lot of personal specifics. Experian suggested they were similar; short sale averaged around 120-130 points while foreclosure averaged 130-140. However, it's very much dependent on other elements; if you have an 800, it's going to knock off more than if you are already at 500, because some of the negatives are already baked into that 500.
A short sale is reported on your credit report as something like "paid in full - not full amount", and thus lenders can see that you didn't pay the debt in full. It will appear on your credit report for either seven years from the date of the sale (if no payments were missed), or seven years from the beginning of the delinquency (if some payments were missed prior to the short sale), according to Experian.
A foreclosure will last for seven years from the date the foreclosure is filed, regardless of whether the foreclosure is completed or not. It likely makes a difference whether or not the foreclosure resulted in the bank taking a loss or being made whole, but I couldn't find any specific information about that.
Another option you don't mention is loan modification programs (where the lender agrees to a different schedule or a different amount, but you still make payments rather than selling the home). Experian doesn't have specific data yet on the impact of these (that's an 2009 article on them, but I haven't found anything better), but they will have some negative impact as well (similar to those credit card modification programs, perhaps).
How to Rebuild Your Credit After a Foreclosure or Short Sale
Stephanie Taylor Christensen on 8/3/2011
If you’re one of the millions of Americans who experienced either a foreclosure or short sales due the housing downturn, you might be left wondering where to go from here, when it comes to rebuilding your credit score.
Here is the information you must know about your credit, to best recover from a foreclosure or short sale.
Though you may be relieved to have finally resolved your housing situation, don’t put it out of your mind just yet. Keith Gumbinger, mortgage expert for HSH.com says that knowing the final terms of the arrangement made with your lender plays a role in rebuilding credit. That’s because different defaulted home loan terms come with different ramifications to your credit score. Know whether you had a short sale (the lender allows you to sell the house for less than the balance on the mortgage, and may or may not require you to make up the deficiency), an involuntary foreclosure (you stopped making payments and the property, and potentially your assets, were seized), or you negotiated a deed-in-lieu of foreclosure (a voluntary process in which you “hand over” the deed to the lender, shortening the process and accompanying expenses), as well as the specific terms were agreed upon. When it comes to foreclosures and short sales, no two agreements are alike; the terms and conditions have different impacts on credit scores, how they are reported to the credit bureaus, and how long they take to “fall off.”
Confirm Where You Are Now
While short sales are often perceived as more “favorable” when it comes to defaulting on a home loan, FICO conducted a study simulating the aftermath of a foreclosure and a short sale, and revealed that in regards to credit score impact, there isn’t much difference between the two events. The real gauge, it seems, is in the starting credit score before the default took place.
FICO examined three hypothetical consumers with starting credit scores of 680 (customer A) 720 (customer B), and 780 (customer C). It found that despite whether the loan default was a short sale or foreclosure, customer C’s credit score was most impacted, indicating that the higher the credit score, the longer it takes to restore. Further, time is critical in rebuilding credit worthiness: a short sale with no deficiency balance will generally require at least three years before the credit score will increase. In the case of a foreclosure, the borrower must wait for at least seven years, and in some cases, up to ten, if a bankruptcy filing was involved.
Keep Credit Cards Under Control
After you have completed the foreclosure or short sale, request your credit report from Annualcreditreport.com, which allows you one free credit report each year. Confirm that the report does not contain any errors, or reflect old debts that were paid off, and report any disputes to Experian, TransUnion and Equifax immediately. Ornella Grosz, author of Moneylicious: A Financial Clue For Generation Y says that one way to add points to your credit score is by paying off or lowering your existing credit card balances, and that “about 30 percent of your credit score is made up from keeping balances low. The lower your debt-to-income ratio, the better.” John Ulzheimer, Mint’s credit columnist, also addresses this the post What Kind of Debt Pay-Off Boosts Your Fico Score Most.
Set up automatic bill pay on all of your existing credit accounts to make certain that creditors are always paid on or before the due date (don’t play with grace periods when you’re trying to rebuild credit). Or use the “Bill Reminders” feature on your Mint.com account. If you have missed payments in the past, commit to starting good habits now. You can rebuild a score by paying every bill on time. On the contrary, skipped or late payments will reduce your credit score further. Don’t attempt to raise your credit score by closing open credit lines, and know that removing the credit availability might actually hurt your score more after a short-sale or foreclosure, when access to new credit will be limited. (To potential lenders, closing the credit, even it you haven’t used it in years, makes it appear as though you are closer to being “maxed out” than you really are).
If you are left with no credit lines after the foreclosure or short sale and cannot find unsecured lines of credit, apply for a secured credit card, which are offered by many financial institutions and credit unions. Secured cards will require you to deposit funds with the creditor, in exchange for a credit card with a credit line of the same amount. (For example, if you put $500 down, that will be the amount of your secured credit line). If you use secured cards responsibly, they will help to slowly increase your credit score. Over time, the lender may raise your line of credit for “good behavior,” and eventually, you’ll be a candidate for unsecured credit again. However, Grosz cautions to read the fine print in the agreement for all secured cards, and confirm that you will not be charged additional fees for use.
Rebuilding credit after a short sale or foreclosure can be frustrating, but it is a process most impacted by being patient. Amber Stubbs, senior managing editor at Cardratings.com says “the more time passes, the less a black mark affects your credit, and you won’t be able to make a full recovery until the derogatory item is off your credit report. Most derogatory items, including foreclosures, fall off seven years after the last activity on the account. If you manage other accounts responsibly while you wait, you should be in good shape by the time the foreclosure disappears from your credit report.”
Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.
short sale and credit
If you are facing a foreclosure you may want to read this article on short sale. It will provide information on how short sale affects your credit and the difference between short sale vs. foreclosure. Keep reading to find out if choosing a short sale is right for you.
How a Short Sale Affects Your Credit
One of the ways that some people try to avoid foreclosure is by doing what is known as a short sale. This is an interesting arrangement in which the mortgage lender agrees to a home sale that amounts to less than what is owed on the mortgage. This is most likely to happen when a home has lost value or the equity has been tapped out. In such cases, there is often not enough equity in the home anyway to pay for the costs of discharging the mortgage as well as the costs of the sale.
Short sale v. foreclosure
In a short sale, your home is sold. If you make the proper arrangements, you can actually manage to avoid having the home show up as a foreclosure. With a short sale, though, you usually have to have tried to sell the home for 90 days at market value. If that doesn't work, your lender may agree to allow you to sell the home for less than what is owed on the mortgage. Mortgage lenders are also more likely to let you do a short sale if you are at risk of foreclosure, or have stopped making mortgage payments. The difference is written off by the lender, you may be required to pay taxes on the difference as income, since it counts as mortga