How much will a Short Sale hurt my Credit Score?

It goes without saying but a short sale will no doubt damage even the highest credit score.It is fair to ask, what is a reasonable expectation for your credit to be after a short sale has concluded? It is impossible to say conclusively, but first and foremost it is important to understand how a credit report is scored.

A credit score is created when one of the three credit bureaus analyses your full credit history and weighs about five or so different factors on their own numerical scale. The types of information valued are, the balances owed on credit lines, payment history, types of credit, age of credit as well as the length of time on the credit lines. From all of these different factors a FICO score is created.

Fair Isaac created the FICO score, and as the creator of this illusive creature, Fair Isaac would be a great source to determine just how much that short sale will hurt your credit. Unfortunately legalese has a stranglehold on Fair Isaac and the formal response of the company offers little more than something along the lines of “it’s not going to look good”.

It truly is hard if not impossible to say exactly how a short sale will affect your score, as every situation is slightly different from the next, but there is more to a credit report than simply the numerical score at the top of the page. Hopefully this will provide you a bit more of a ballpark idea of how a short sale will likely affect you.

Initially a short sale will damage your score about just as much as a foreclosure or bankruptcy, but will incrementally improve at a quicker rate than the latter two. Short sales are looked upon far more favorably than a foreclosure by future lenders. A short sale shows that you were willing to cooperate with the lender to fulfill your financial obligations as best as you could rather than much more simply walking away from a home in a foreclosure. Additionally the Federal Housing Agency (FHA) has created an entire program dedicated to those who have undergone a short sale that allows them to qualify these individuals sooner than an individual who had a home foreclosed upon.

Yet another reason it is hard to say exactly how a short sale will affect a credit score definitively is due to those five factors listed above.The more times that late payments occur, the more a credit score will suffer. Usually during these types of financial maneuvers funds fall short for payments on other credit lines, such as credit cards and cable bills. Having said all of this, the 30, 60, 90 and 120-day late payments hitting your credit report for those late mortgage payments will also compound into one big credit score hit when the mortgage lender reports the short sale

Don't wait till the last minute to see how the short sale is reporting on your credit report..