Will My Husband's Short Sale Affect My Credit?

Sometimes, one spouse sacrifices his credit history so the other spouse can save hers. However, because spouses often join their accounts, a major delinquency like a short sale can affect the reports of both spouses. The effect of a short-sale on your husband's credit report depends on where you live and how you set up the mortgage.

Identification

Your husband's short sale will not affect your credit rating as long as you did not co-sign on the mortgage. If you co-signed the mortgage, the lender reports a delinquency on both of your reports. A short sale can also affect your credit report if you live in a community property state. In a community property state, both spouses are liable for debts incurred during marriage. The lender could pursue a judgment in your name if your husband does not pay off any balance left over on the mortgage after the sale in a community property state. Judgments appear on your credit report as a public record and do damage like a collection account or charge-off debt.

Benefits of Individual Accounts

There is no such thing as a joint credit report, only joint accounts, but keeping only joint accounts could impede your ability to gain credit in the future. If you apply for credit in the future as co-signers, the lender is more likely to deny your loan if one of you have poor credit. On the other hand, if you want to qualify for a mortgage again, you have use only your income if you apply as an individual.

Considerations

Short sales do not always damage your credit, because there is the possibility that the sale pays off the entire mortgage. The lender and seller in a short sale agree to take a minimum amount for the property and cancel the rest of the mortgage. This does not preclude someone from making a much larger than anticipated offer that covers the mortgage, especially if you already paid off a significant chunk of the debt. Alternatively, you could try to negotiate with the lender to get him to report the account as "paid as agreed" regardless of the selling price.

Tip

The short sale probably lowers your husband's credit score by more than 100 points. You should help him start rebuilding his credit immediately. You can add him as an authorized account holder on your individual accounts, which transfer account history to his report. Authorized users are much easier to remove than joint account holders. Also, authorized users do not have to pay the bill on an account.