A short sale helps you prevent foreclosure, but it still counts as a negative item determining your credit rating. You do a short sale when you sell your home for less money than you owe the mortgage holder. Your bank or finance company must agree to the sale terms, and it accepts the reduced amount rather than forcing you to pay the full loan balance. You can usually improve your credit after the short sale.
Effect
A short sale is not explicitly noted in your credit bureau reports, but your mortgage holder marks the loan as "settled" rather than "paid in full," according to Maxine Sweet of the Experian credit bureau. This alerts other lenders to the short sale and is considered negative when they evaluate your future loan applications. Your credit score also takes a hit due to settled accounts. You may have trouble getting credit or be forced to pay high sub-prime interest rates, especially if you have other late, settled or charged-off accounts.
Status
Check your credit rating status after your short sale by ordering free credit reports from Experian, Equifax and TransUnion, which are the three big credit bureaus, through AnnualCreditReport.com. The bureaus work cooperatively through that official site to comply with the Fair and Accurate Credit Transactions Act, which makes them provide free reports once every 12 months. Note how your mortgage holder reported your short sale, make a list of any other negative information and look for mistakes in all the bad entries.
Repair
Credit repair involves forcing the credit bureaus to remove as many bad items as possible from your credit reports, which is done through the dispute process mandated by the Fair Credit Reporting Act. Alert the bureaus to every mistake you found in your credit report by writing a letter to each of them, requesting removal of the errors. The law gives the bureaus a limit of 30 days to either verify or erase any entries you question because of legitimate errors, even if the inaccuracies are small. Experian, Equifax and TransUnion will remove any entries that are not validated by the creditors, and they may erase some items without investigation if they are busy, according to the Divorcenet website. These removals help your credit, even though you still have a short sale in your records.
Warning
Some credit repair company ads claim an ability to erase everything negative on your credit reports, including short sales, but the FTC warns that all such promises are false. No one can legally expunge accurate information from your reports. Unscrupulous repairers either charge you and do nothing or dispute every bad item on your reports, including the short sale. The credit bureaus reject these blanket disputes immediately because the law excuses them from investigating obviously frivolous claims.
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