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How Selling Your Home Can Impact Your Credit

Advertiser Disclosure by Lucy Lazarony

How Selling Your Home Can Impact Your Credit

Are you getting ready to sell your home, but wonder if it will affect your credit? Selling your home could impact your credit in a few key ways. Let’s take a look…

Impact On Your Payment History

Having a mortgage with a positive payment history is a big plus for your credit. When you sell a home and pay off a mortgage in full, the paid mortgage will stay on your credit report for 10 years from the paid date.

However, that means any negative information from your mortgage payment history will stick around, as well. Negative information, such as a missed mortgage payment, remains on your credit report for seven years.

So even after you sell a house, the impact of how you paid your mortgage can impact your credit for years to come.

Impact On Your Current Debt Obligations

If you sell your home and obtain a mortgage for a new home, you have the opportunity to continue benefiting from keeping a good payment history on a current mortgage. Over time, this can raise your scores.

However, if you sell your home and choose to rent and therefore do not carry a mortgage anymore, it won’t hurt your credit, but it also will not raise your score.

You might also decide to pay down existing credit card debt if you’re able to allocate some of the funds from the sale of your home.  Paying down revolving debt can raise your credit scores, especially if you are using a high percentage of your available credit (your debt utilization is another important factor in your credit score).

Short Sales and Your Credit

One way that selling your home can negatively affect your credit is by opting for a short sale. A short sale means you sell your home for less than you owe on the mortgage.

Selling your home in a short sale will cause your credit to drop significantly. It’s important to consider your options carefully before you decide, and be prepared to work over the next several years to re-establish better credit if a short sale is your best option.

Staying current with your other payments and paying down credit card debt are good strategies for lifting up your credit score over time.

Track your progress through, where you can get two free credit scores, updated every month.

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  • Gigi

    my sister told me that if I sell my house with my history of on time payments to rent I may not be able to buy again since I’m the hook for my kids’ huge student loan debt – is this true? I plan to pay down my credit card debt. Thanks!

    • Credit Experts

      It might be. When you apply for a mortgage, the lender will look at your credit scores, your income and your debt obligations. We’re guessing you didn’t have the student loan debt when you qualified for the mortgage you have now. We addressed the issue of student loans and mortgages here: How Student Loans Can Hurt Your Mortgage Application

  • Karneus

    I was wanting to sell my home and purchase a home closer to my employment but I was also wanting to use some of the money from the sell of the house to pay off some school debt, would it be smarter to pay off the school debt before or after getting the new loan?

    • Gerri Detweiler

      It depends on your debt ratios and how much of a down payment you have. If you have enough of a down payment to get the loan you want and avoid mortgage insurance then you could use money to pay down debt. But paying down student loans may not help as much as you think: it’s the monthly payment that counts when it comes to getting a mortgage, and unlike credit cards, lowering the balance on a student loan doesn’t usually reduce the payments.

  • Gwen

    my husband has been forced into disability. I am making the mortgage payment but it is very difficult. We got a modification but it hasn’t helped the payment decrease. The house is bigger than what we need. My credit score has been hit b/c of our sudden income drop. I want to sell the house but I have been told our credit score needs to be over 580 to get a new mortgage loan for a smaller/cheaper home….if we sell our current home, how long will it take to get our credit score back up?? I am thinking we should sell it, rent for a while and hopefully be able to buy something else in the next 6-12 months….I am just feeling nervous and want to make a good decision about this. As it is I am working…..I pay the mortgage, the electricity and other utilities…and after groceries and gas there is no money left……I would like to have a positive cash flow…..

    • Credit Experts

      Gwen —
      A drop in income should not affect your credit score unless the result was that you paid bills late. Late payments have a big impact on your credit. You can get two free credit scores from, along with personalized advice for improving yours. Those scores are updated every 30 days. Also, be sure you monitor your scores, and understand that scores fluctuate. You may also want to get a copy of your credit reports (you can get one free every year from each of the three major credit bureaus) to check for errors. The information used to calculate your credit scores comes from here. Here’s how to get your free annual credit reports.

  • Kaleigh

    my ex and i bought a house 2 years ago and have since separated. we are looking into an “assumption” of the loan, for him to keep the house and I basically just walk away. how does that affect my credit?

    • Gerri Detweiler

      It depends on what you mean by an assumption. If you do it legally with the lender, and they remove you from the loan that’s not a problem. But if you do it without getting the lender’s blessing and your ex or whomever doesn’t pay you are stuck with the mess that creates. So try to do it above board if you can.

    • Emily Combs

      I had this issue. You have to refinance if he is unable to on his own then you will be stuck with it on your credit. You can get a quit claims but it will still impact your credit, you just will have no rights and they can still come after you for payments.

  • Adam

    I’m very behind on my house payment, we want to sell it and pay off all of our other debt. We might be able to get a loan modification, would it make any difference to do the modification before selling or just sell it in my current behind status?

    • Gerri Detweiler

      If you can sell it and net enough to pay off the balance (including any costs associated with the sale, such as real estate commissions and closing costs) then it may make sense to do so. But if you can’t sell it for what you need to owe then you may need to seek a loan modification. Loan modifications can take a long time, however, and they are never guaranteed.

  • Casey

    How long does it take for the paid off mortgage to show up on my credit report? I’m sending in my payoff amount in the beginning of September. How soon can I see that reflected? Thanks in advance for your help!

    • Credit Experts

      It should show up within 30 days of being reported to the bureaus (so part of it will depend on how quickly your lender reports it to the bureaus).

  • Patty

    I have a mortgage on a home that I purchased 6 years ago. I put 20% down when I bought. I am now in a financial position that my credit card debt is swallowing my income. I am not late on any payments, never have been, but it’s getting close. If I can sell my house, would a bank allow me to use the profit to totally pay off my other debts, and also purchase a smaller, less expensive house…all in one process? Or, will I be orced to sell, pay off debt and wait for this to all clear before a lender will lend to me for a smaller, cheaper home? I have a good job, but just got too deep under cc debt and need a fresh start, per say. The house I’m looking at is 1/2 the cost of the home I currently own. If I could start over with this smaller house, the mortgage payment would very doable and I would have no other debts. Thank you!!

    • Kali Geldis

      Hey Patty — Your best bet is to talk to a mortgage lender.

      Here are the things you should ask about:
      – What your debt-to-income ratio is with the debts now and what it would be without those debts. If your debt-to-income ratio with your new house payment is above a certain amount, it may be difficult to get a mortgage because of underwriting concerns.
      – Whether the debts you have are going to have an ongoing negative effect on your credit score that will make a new home loan impossible. If you have a debt in collections, for example, even if you pay the collector your credit score will still have the negative mark. You can check your credit scores for free on to see where you stand:
      – Whether it’s better to take the cash from your home sale to put toward a higher down payment vs. paying off debts, then use the savings in your monthly budget in the new home to work on debt payments.

      Hope this helps! Just remember –talking to a mortgage officer at your local bank is free, just make sure you understand if they’re going to pull your credit and the impact that can have. We suggest going in with your credit scores and reports and have a frank discussion with the experts on the ground in your area!

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  • Meet The Expert

    lucy_lazarony GravatarLucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.
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