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The short sale impact on credit

Impact of a Short Sale on Credit

A short sale is a real estate transaction in which a homeowner sells their property for less than the outstanding mortgage balance, with the lender’s approval. While a short sale can provide relief for homeowners facing financial hardships, it can also have significant consequences for their credit. In this blog, we will delve into the intricacies of a short sale on your credit and help you understand its impact. Let’s explore how this financial decision can affect your creditworthiness.

What Is a Short Sale?

Before delving into its credit impact, let’s clarify what a short sale entails. A short sale occurs when a homeowner, unable to continue making mortgage payments due to financial hardship, seeks approval from their lender to sell the property for less than the mortgage balance. This allows the homeowner to avoid foreclosure and the associated legal and financial repercussions.

The Credit Reporting Process

When a short sale is completed, it typically appears on your credit report as a “settled” or “paid for less than the full amount” account. This status signals to potential creditors that you did not repay the full debt as originally agreed. As a result, the impact on your credit score can be significant.

Credit Score Impact

The extent of the credit score impact largely depends on your credit history before the short sale and how the lender reports it to the credit bureaus. On average, a short sale can lower your credit score by 100 to 150 points. If your credit was previously excellent, the impact might be more severe than if your credit was fair or poor.

Duration of the Impact

One of the primary concerns for individuals considering a short sale is how long the negative impact will linger on their credit report. A short sale typically remains on your credit report for seven years from the date of the sale. During this time, it can affect your ability to secure new credit, loans, or favorable interest rates.

Rebuilding Your Credit

While a short sale can be detrimental to your credit, it’s not an insurmountable obstacle. You can take steps to rebuild your credit over time. Start by consistently paying bills on time, reducing credit card balances, and avoiding new debt. Over the years, as the short sale ages on your credit report, its impact will gradually diminish.

Future Mortgage Opportunities

After a short sale, you may wonder when you’ll be eligible for another mortgage. While the waiting period varies depending on the type of loan and the lender’s policies, it’s possible to qualify for a new mortgage within a few years of a short sale, especially if you can demonstrate improved financial stability.

Seeking Professional Guidance

Navigating the credit impact of a short sale can be complex. It’s advisable to consult with a financial advisor or credit counselor who can provide personalized guidance on rebuilding your credit and making informed financial decisions.


A short sale can offer a lifeline to homeowners facing financial distress, but it comes with credit consequences that shouldn’t be underestimated. Understanding the impact of a short sale on your credit is crucial for managing your financial future. While the initial credit setback can be significant, with time and responsible financial management, you can gradually rebuild your creditworthiness and move forward toward your financial goals.