Credit Score After a Short Sale or a Foreclosure?
Credit Score After a Short Sale or a Foreclosure
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Credit Score After a Short Sale or a Foreclosure?
With our current economic climate, it is crucial to take your credit seriously and to give it the attention it deserves! Smart people work hard to maintain good credit, or to improve credit imperfections.
Many people have seen dramatic changes in their credit in the last several years. Some changes are a result of being foreclosed on, completing a deed in lieu of foreclosure, short selling real estate, job loss, or a combination. If you are amongst the group of people who have been directly affected by the economy, you are in good company. Don't let yourself believe you cannot do anything to improve your credit after losing your home.
Commit to starting fresh, to caring for your credit rating, and to try to repair some of the damages that have been caused. Today is a new beginning. . Put the past behind you and move forward.
Fundamentally, a good credit score can enable you to obtain work, to get loans, insurance, or to be eligible for very desirable rates. The impact a short sale, deed in lieu of foreclosure, or a foreclosure can have on your credit score can vary greatly. I hope that you made effort to short sale over getting foreclosed on. It is my experience that a foreclosure causes more damage on a credit rating than a short sale. Each bank operates differently, and each case unique.
I have seen as low as a 50 point drop on a short sale. This was on an owner occupied home with a Wells Fargo loan (1st Mortgage Only), when the homeowner was delinquent on his payments. The lender reported the short sale as a "settled short of payoff".
Lender approval letters on a short sale will generally detail how the short sale will be reported to the Credit Bureau. It is so important to keep the short
sale approval letter from your bank and to have your credit run to ensure that your short sale was accurately reported to the Bureau. Your Realtor should provide you with the banks written approval for you to review, and for your records. This document is very important. I can't remember for sure, but I believe most banks report your short sale to the Credit Bureau within 6 months.
Not only is it important to keep the document, it is important to have your credit report ran in that 6 month period to make sure it was reported properly, and to see the impact it had on your credit. Banks appreciate your willingness to try to sell the home for them and to save them from having the expense of foreclosing. This appreciation should be reflected in your credit score deduction, when measured against the significant damage a foreclosure would cause on your credit score. If you are currently deciding how to handle your situation, contact your local trusted professionals to make sure you are making the best decision for your situation.
I think it is fair to say that for owner occupied homes, short selling is worth the effort. Investment homes can have some tax consequences that make short selling unattractive, but that is an article for another time. For owner occupied homes with a 1st mortgage only, "The Mortgage Forgiveness Debt Relief Act and Debt Cancellation" eliminates tax consequences. Check to see if the Debt Relief Act is applicable to your situation.
If you have a short sale, foreclosure, or deed in lieu behind you, commit to making all of your payments on time and to check your credit to see the impact losing your home had on your credit life. Make sure that your short sale approval letter matches the Credit Bureau reporting.
Tips, tricks, and advice to improving your credit score rating
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