8 Tips to Minimize Damage to Your Credit Score During a Short Sale

The hard truth is that a short sale can damage your credit.

Both a foreclosure and a short sale can lower your credit score and will stay on your credit track record for seven years. With time, though, you can transform your credit score through credit rebuilding techniques such as paying all of your bills on time, reducing your debt, and, if necessary acquiring a secured credit card and making regular payments.

The impact of a short sale on your credit will depend on several factors, like the way your lender accounts the brief sales to the credit reporting agencies. Most lenders use the word “settled” for a short sale, which indicates that significantly less than the entire debt was repaid. If you can discuss with your lender to make use of the term “paid”, your credit will not be much damaged, but lenders rarely agree to that.

Your FICO rating could drop by anywhere in the range of 85 to 200 points depending upon whether you have been paying your home loan on time and your past financial assessment. In the event that, for instance, you had great credit of 700 or above, your score may drop significantly more than somebody who as of now had a low FICO rating of 620 or so because a short sale indicates potential future defaults on other credit, particularly if the borrower with low score had been making their mortgage payments on time. If you had months of non-payment, incomplete payments or late installments on your home loan, your FICO assessment will likewise be lower on account of the mix of the short sale and a bad mortgage payment history.

Despite the impact on your credit, a short sale may be the best option if you cannot stay at your home because you can move from your current situation and begin rebuilding your credit for the future.

Therefore, here are some tips to help the short sale seller minimize damage to their credit score:

  1. Work to Raise Credit Score Before the Short Sale

First, sellers can work to raise credit scores before the short sale process takes place to help reduce the implicative insinuations of this transaction. Spend time learning how to increase your credit score and work to utilize this information sapiently. Sellers can project the potential damage to their credit score and plan to raise their score by that amount before the sale. For example, if the transaction may reduce your credit score by 200 points, work to raise the score by 200 points before starting the short sale.

  1. Work to Continue Making Payments

Another tip that may help sellers lessen the credit ramifications of a short sale is working to keep making installments on the home loan even while working towards a short sale. Mortgage holders don’t need to quit making installments to get a loan specialist to consent to a short sale. Evading missed installments will help sellers maintain a strategic distance from the additional hit on their FICO rating, which can have a major effect in the wake of managing the drop in credit rating that happens after the short sale occurs. 

  1. Speak to Lenders Concerning How the Short sale Will Be Reported

Homeowners may also want to talk to lenders regarding how the short sale will be reported on their credit history. Negotiate to be sure lenders report the sale in the least damaging words possible. While the short selling will still go on the credit file, less damaging words can make a huge distinction in how future lenders view consumers when they apply for new credit.

  1. Attack old debt through Debt Validation

    Before paying off old credit card debt that was sold to a collection agency, first try debt validation. When a debt is sold, the documents proving that you own the debt do not always change hands. So make the collection agency prove that you owe the debt. If they cannot do that, you are not legally responsible for it and it should be removed from your credit reports.

  2. Arrange Debt Settlements

You might be amazed at exactly how little debt collectors will accept to settle an obligation, particularly on the off chance that they don’t sense that you’re in any race to do it fast. All things considered, it can be a scary process, and one you could pay another person to do. Luckily, there is nothing a debt settlement company can do that you can’t do for yourself.

  1. Build up Emergency Fund

In case you’re in the propensity for utilizing credit to pay for sudden costs, from auto repairs to medical expenses, then you have to fabricate a greater rainy day account. While six months of everyday costs might be ideal, in the event that you don’t have anything in your rainy day account by any stretch of the imagination, shoot for $500 to $1,000 to begin. If you put aside only $25 to $50, you’ll be there before you know it.

  1. Make Mortgage Payments until Short Sale is Final

Banks are not required to endorse a short sale on your home loan. A good motivation for them to do as such, nonetheless, is to see that you are staying current on your home loan installments. Also, you’ll stay away from the negative effect of late mortgage installments on your credit reports.

  1. Keep Using Credit Card Accounts

Letting an open credit card account sit nonproductive is missing out on the chance to significantly improve your credit score. Use the account at least once a month, but only on things you would have to pay for anyway, like gas or a utility bill. Then simply pay off the balance each month. That is how you show accountable credit use and, in turn, build your credit score.