Can I Get My Short Sale to Not Affect My Credit Score?

Short-selling allows you to avoid foreclosure on a home, and while a short sale is in many ways preferable to a foreclosure, there are several consequences homeowners need to consider before choosing how to deal with their unaffordable home loans. For starters, no matter how you go about it, a short sale is going to have a big impact on your credit. Here are a few things to know about a short sale. We’ll also answer another big question “how long does a short sale stay on your credit report?” Let’s break it down.

What Is a Short Sale?

A short sale is when you sell your home for less than the amount you owe your mortgage lender, and the lender receives the proceeds of the sale. The lender may forgive your remaining loan balance or seek a deficiency judgment against you (if allowed by state law), requiring you to repay the difference between the sale and the loan balance.

Do Short Sales Affect Your Credit?

Yes. There is no way to avoid the damage a short sale does to your credit score. A short sale can knock as much as 160 points off your credit score, but the level of damage heavily depends on your credit standing before the short sale and how much your lender gets in the sale, among other things.

This is comparable to how foreclosure affects your credit: According to a FICO study, both short-selling and foreclosing on your home can cause a score of 780 to drop as low as 620, while a score of 720 can fall to 570 and a score of 680 can drop to 575.

How Is a Short Sale Reported on Your Credit Report?

A loan that is paid by a short sale could be reported as a charge-off, a settlement, a deed-in-lieu of foreclosure or “settled for less than the full amount due” on your credit report. 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, a deficiency judgment will appear on your credit report in addition to the short sale, potentially adding to the credit damage.

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

Like a foreclosure, a short sale is considered a derogatory item and it can remain on your credit report for up to seven years.

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    It takes time for your credit to recover after a short sale. Credit scores place the most emphasis on the most recent 24 months, so you can expect your credit score to slowly begin to recover in a couple of years or so.

    How Can You Rebuild Credit After a Short Sale?

    To rebuild credit after a short sale, do everything you can to stick to credit-positive behavior: Pay bills on time, keep credit card balances low and only take on new credit as needed.

    If you have credit card debt, getting a plan to pay down those balances will help your credit score as well. Your amount of debt accounts for 30% of your credit scores, so lowering your credit card balances will help to improve your credit utilization (how much you’re using of your available credit) and boost your credit score. Getting your credit card balances down to less than 10% of your credit limits is optimal for your credit score. And paying off credit card debt entirely is good for your wallet.

    You can monitor your credit and chart your credit recovery post-short sale by reviewing two of your credit scores for free on When you take a look at how your scores are doing, you’ll also receive customized credit tips for improving your scores.

    You can also keep close tabs on your credit by reviewing your free annual credit reports from each of the three major credit reporting agencies — Equifax, Experian and TransUnion. You can pull these reports via

    Christine DiGangi contributed to this article.

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