How does a Short Sale vs. Foreclosure affect your Credit Score?

While a short sale may be a good move financially when you can't find someone to buy your home for the full loan amount, it still has very serious credit implications. It is very likely that your credit scores will suffer greatly because of the short sale and believe it or not, may have the same implications as a foreclosure.

The reason that your scores will suffer is because of how your mortgage lender will report the loan to the credit reporting agencies.  Remember: Credit scores are smart...but they are only as smart as the information reported by your lenders.

The ONLY way that credit scores know that you've disposed of your mortgage via a short sale is if your mortgage lender chooses to report that to the credit bureaus.

There are two ways that the loan can be reported:

1. "Settlement accepted on this account." 
2. Or  "Settled for less than the full loan amount." 

The exact verbiage will vary by bureau but they all mean the same thing...that the loan was not paid in full according to the terms of the original loan agreement.  Short sales and deeds-in-lieu of foreclosure are all "not paid as agreed" accounts, and considered the same by the scoring model.  Scoring models will consider this to be a serious negative item, and in fact, will come out just as bad for your scores as a foreclosure.

To make a long story short:  short selling, deed in lieu, and foreclosure all mean the same thing to your score.

Greg Vogel |  Certified Credit Expert | MyWellnessCredit.com | Direct: 1-888-232-9996 | Cell: 970-420-7832 | Fax: 970-692-8371 | FCRA Certified

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