Do Short Sales Affect Credit Scores?
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Short Sales Can Settle Debt
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A short sale is when a home sells for less than the outstanding mortgage amount. The impact of a short sale on a credit score depends on how the lender reports the transaction to the credit bureaus. According to Experian, most lenders report short sales as "settled," meaning that the lender agreed to accept less than the amount owed.
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Short Sales Negatively Affect Credit Scores
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Paying less than the amount owed on a mortgage loan, or any loan, will negatively affect the borrower's credit scores between 75 and 100 points. Accounts classified as "settled" or "not paid as agreed" will work to decrease a FICO score, no matter if the account was a foreclosure, short sale or a defaulted credit card. Foreclosures or "deed in lieu" classifications can drop your credit score up to 250 points.
Bottom Line
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Short sales and foreclosures can affect a credit score for at least seven years but the credit score reduction is less from a short sale. Foreclosures are listed in the Public Information section of a credit report along with judgments; settled accounts are not. Short sales show prospective lenders that a homeowner actively reduced mortgage debt and made the most of a difficult situation.
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