How Will A Short Sale Affect My Credit Rating?

Credit bureaus and the credit rating system can be cryptic. They tell you that a great score is 700-720 or more. Between 600-700 is decent and anything below that means you are a risk for lenders. Bureaus will have their own way of calculating your credit score, and much of it is based on a pattern of reliability.

Credit rating drop with a short sale

A short sale can be just as bad as a foreclosure, in many cases. Being a month behind on your mortgage can mean a hit to your credit rating anywhere from 40 to 110 points per month. Because you must wait 59 days to qualify for a short sale, in most cases, you can expect at least another 100-200 point hit to your credit score. All told, a short sale can take your sterling 720-point FICO score as low as 420.

In this market, and depending on what agencies your lender reports to, it’s impossible to know just how much a short sale will hurt your FICO score. However, there have been reports of people only losing as much as 100 points.

It isn’t wise to hope you will be one of the exceptional few, so be aware that a short sale will have an impact on your ability to buy or rent a home. Because short sales are reported differently, you will be able to apply for an institutional loan somewhere between 24 and 72 months.

It is important to realize that your FICO score isn’t damaged by a short sale or foreclosure, but the duration you were delinquent on payments. Each month you are behind your FICO score is docked more points.