Does a short sale show up on your credit report?

According to the three national credit bureaus (Equifax, Experian and TransUnion), a short sale may appear on your credit reports as “not paid as agreed,” meaning that the lender received less than the total amount of the loan originally agreed upon. However, how much can a short sale affect credit? Data from Fair Isaac Corporation (FICO) shows that short selling can lower a consumer's credit rating by 85 to 150 points, depending on where their credit started. In the case of short selling, the impact is more significant when there is a deficient balance. A short sale will stay on your credit report for seven years.

The starting point for this period depends on the timeliness of your mortgage payments. If your payments were never late and the account was current at the time of the short sale, the period begins on the date of the sale. If your payments were late, the seven-year period begins on the original delinquency date. There are several ways in which a foreclosure or short sale affects your credit rating.

If done correctly, a short sale can have less of a negative impact on your credit rating than a foreclosure. Credit rating aside, a short sale can also be a better option than foreclosure, since you won't have to wait that long to qualify for an FHA loan if you want to buy another home. Your agent will also ensure that all additional legal guidelines required in a short sale are followed. In addition, FICO revealed that, while a short sale has the same effect on your credit rating as a foreclosure if there is a deficient balance after the sale, short selling without a poor balance is significantly less harmful to your credit rating.

You'll need to contact your lender or mortgage servicer directly to find out if a short sale is possible and the associated requirements. Because foreclosures are always preceded by late payments, short selling may be less harmful to your credit if you made a short sale before making no payments. While possible, a short sale that has a minimal effect on your credit rating can be difficult to achieve. However, a deficit judgment approved by a court after a short sale allows the lender to try to raise additional funds.

According to Tony Wahl, chief operating officer of the online credit analysis platform Credit Sesame, short selling (as well as foreclosures) should be considered “a last resort.” If the short sale that appears on your credit report is an absolute mistake, which can happen if your lender or one of the credit bureaus confused you with someone else, you can try to remove it from your credit report by sending a letter of credit dispute to your lender and to the credit bureaus. Another tactic is to report an error in your credit report if a short sale was mistakenly listed as foreclosure. One way to reduce the impact is to work with your lender to negotiate the short sale without losing any of your payments. When you report an outstanding balance, short selling can affect your credit ratings as would a foreclosure or deed rather than a foreclosure.

A short sale will appear on your credit report, but you might miss it if you don't know what to look for. For example, if you fell behind on your mortgage payments, the short sale will remain on your credit report for seven years from the delinquency date.