How Long Does a Short Sale Stay on Your Credit?
Understand how a short sale affects your credit report, its typical reporting duration, and how to monitor your financial profile.
A short sale in real estate occurs when a homeowner sells their property for less than the outstanding mortgage balance, and the lender agrees to accept this reduced amount as full or partial satisfaction of the debt. This arrangement often becomes an option when a homeowner faces financial hardship and the property’s market value has decreased below the amount owed on the mortgage.
How Short Sales Appear on Credit Reports
A short sale does not appear as a specific item labeled “short sale” on a credit report. Instead, its impact is reflected through various negative entries that collectively represent the transaction. Lenders typically report the mortgage account as “settled for less than the full amount,” “paid in full for less than the full balance,” or sometimes as a “charge-off.” These notations indicate that the borrower did not fully repay the original loan amount as agreed.
In addition to the “settled” status, the credit report will also show the payment history leading up to the short sale. Any missed or late mortgage payments made before the short sale’s completion will be recorded as delinquencies. These late payments significantly contribute to the negative impact on a credit score. Payment history is a primary factor influencing credit scores, so a series of missed payments can cause a substantial decline.
The immediate effect of a short sale on a credit score can be considerable, typically ranging from a 50 to 150-point drop. The exact amount of the score reduction depends on several factors, including the consumer’s credit history prior to the short sale and the specific credit scoring model used.
While a short sale negatively affects credit, it is generally considered less damaging than a foreclosure. A short sale represents a negotiated resolution with the lender. Foreclosures often involve more severe delinquencies and can result in a larger credit score drop, sometimes between 150 to 300 points. The way a lender reports the short sale to credit bureaus, such as whether a deficiency balance is reported, can also influence the overall credit impact.
Standard Reporting Periods for Short Sales
Most negative information, including the various entries related to a short sale, typically remains on a consumer’s credit report for up to seven years. This includes late payments, charge-offs, and accounts reported as “settled for less than the full amount.” This reporting timeframe is established under the Fair Credit Reporting Act (FCRA), which governs how consumer credit information is collected and reported.
The seven-year period for a short sale generally begins from the date of the original delinquency that led to the account’s negative status. This means that even if the short sale is finalized at a later date, the reporting period for the associated negative marks relates back to when the financial difficulties first became apparent through missed payments.
If a consumer managed to avoid any missed mortgage payments before the short sale was completed, the seven-year reporting period for the “settled” status would typically begin from the date the account was reported as settled or paid. The presence of a deficiency judgment, where the borrower remains responsible for the difference between the sale price and the outstanding balance, can also appear on the credit report, potentially adding to the credit damage.
While a short sale and a foreclosure both remain on a credit report for up to seven years, their impact on future borrowing and credit scores can differ. A foreclosure typically begins after multiple missed mortgage payments, and the foreclosure event itself is a distinct negative public record. A short sale may allow for a quicker credit score rebound and shorter waiting periods for new mortgage eligibility compared to a foreclosure.
Monitoring and Maintaining Your Credit Profile
Actively monitoring and maintaining your credit profile becomes important for recovery. Consumers are entitled to a free credit report every 12 months from each of the three major nationwide credit bureaus: Equifax, Experian, and TransUnion. These reports can be accessed through the official website, AnnualCreditReport.com. Federal law now also grants consumers free weekly access to their credit reports from these bureaus, providing more frequent opportunities for review.
Regularly reviewing these credit reports is important to ensure that all information is accurate and to identify any potential errors. This includes verifying the reporting of the short sale and any associated accounts. Consumers should scrutinize details such as the reported status of the mortgage account, the dates of delinquencies, and the settlement notation. If any inaccuracies are found, such as incorrect dates, amounts, or misreported account statuses, they should be disputed.
To dispute inaccurate information, consumers can contact the credit bureau (Equifax, Experian, or TransUnion) directly, and it is also advisable to contact the company that provided the incorrect information (the lender). Disputes can typically be submitted online, by phone, or by mail. When initiating a dispute, it is helpful to provide supporting documents, such as payment records or correspondence with the lender, to substantiate the claim.
Under the Fair Credit Reporting Act (FCRA), credit bureaus are generally required to investigate disputes within 30 to 45 days of receiving them. During this period, the credit bureau will contact the data furnisher to verify the accuracy of the disputed information. If the information is found to be inaccurate or cannot be verified, it must be corrected or removed from the credit report. This proactive approach to managing credit reports is an important part of the credit rebuilding process following a short sale.