A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.
In simple terms, you owe a certain amount to the bank. For whatever reason, you want to sell your home for less than that amount. That, ladies in gentlemen, is a short sale.
So how does a short sale affect your credit?
The short terms is…it depends. If you have kept up your payments, the impact may be slight. Think about it. You did renege on your loan with the bank. If you have missed payments however, the impact on your credit score can be significant. Obviously, the more payments you miss, the worse the hit your credit score will take. If you’ve missed payments, your goal should be to take a proactive stance on improving your credit.
How do I fix my credit you say?
Since you can’t fix the short sale, the next best thing is to fix everything else.
Check Your Credit
The first step is to get your credit report and read it. Look at all of the negative remarks on your report. Check to see if there are any that are there incorrectly. Are there old bills you have already settled, bills you already paid, negative remarks made in error. If there are errors, write a letter to dispute them so that they can be removed from your credit.
If you have any negative remarks that are on your report that you know belong to you try to call the creditor to negotiate. Many creditors understand that things happen in life and may be willing to work with you if you “make good.” Many times they will take less than you owe so that they can close the books on your account. Write a letter offering to pay the remaining balance if the creditor will then report the account as “paid as agreed” or maybe even remove it altogether. (Note: Get the creditor to agree in writing before you make the payment.)
Pay Your Bills
Seriously, paying off what you owe and staying credit is going to be key. Try to make the short sale the only error on your report. This will not only help your credit score, but if you are looking to rent a car or get a new job it’s easier to explain a one-time issue than a series of bad judgments.
Manage Credit Cards Responsibly
In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit scores. But don’t go crazy. Use it and pay it on time. Don’t hold large balances. Don’t buy more than you can afford. It’s simple, but it works.
Check Your Limits
While we are on credit cards, remember to check your limits to make sure your reported credit limits are current vs. lower than they actually are. You don’t want it to look as though you’re maxing out the plastic each month. If the card issuer forgot to mention your newly bumped-up credit limit, request that this be done.