Many people suffer under the illusion that a short sale is the ultimate means to escape a bad credit report. In reality, nothing could be further from the truth. Short sales, though they may save you from the stigma attached to foreclosure, will still damage your credit and make you a liability to new creditors for years to come.
Creditors don’t mince numbers or words with your credit history
Creditors are a notoriously tight bunch. If you consider the fact that you can cross mountain ranges, jurisdictions and, in some cases, move internationally and not escape a bad credit score, these guys mean business. There are several events on your FICO score that all spell creditor trouble in the same way: serious delinquency, collection filed and derogatory public record. All three tell the creditor that you failed to pay as promised. Short sales are typically recorded as a derogatory public record.
A short sale and foreclosure are the same in the eyes of creditors
Creditors, short sale or foreclosure, will still see you as someone who defaulted on their home loan—don’t expect credit miracles from your short sale. The silver lining to short selling is that it remains a blemish on your record for 2 years instead of the 5 that comes with foreclosure. Consider it a reduced punitive credit sentencing and move on.
Because the housing market remains in shambles, you may try to negotiate the kind of poor credit listing your bank ultimate reports. Occasionally, when the credit gods smile, your bank or creditor will agree to a lesser credit punishment so long as everyone gets what they want out of the short sale transaction.