How Long Does a Short Sale Stay On Your Credit Report?

If you couldn’t make payments on your home and resorted to short selling your home, you probably noticed a significant drop in your credit score due to the short sale. A short sale refers to the process of selling your home for less than what you owe to pay back your lender. So, how long does a short sale remain on your credit report? We will answer this question in much detail below.

How Long Does a Short Sale Stay On Your Credit Report?

A short sale stays on your credit report for up to seven years. A short sale can cause significant damage to your credit score, often resulting in a score drop of more than 150 points. That said, even though a short sale remains on your credit for seven years, the impact it has on your credit score will begin to lessen as the derogatory marks related to the short sale age.

Typically, when you’re involved in a short sale, the short sale is not reported as a short sale, rather, it appears on your credit report as a charged-off debt, settled for less than the full amount, settled, or a deed in lieu of foreclosure. Regardless of how a short sale is reported, you probably noticed a significant drop in your credit score.

When a short sale is first reported on your credit report, you may have noticed a drop of 150 points or more in your credit score, however, you should know that as the short sale ages, its impact on your credit score will lessen.

You should notice that your credit score will begin to improve after 24 months of the negative information being reported on your credit report. That said, the biggest improvement will occur after the derogatory marks are removed from your credit report after 7 years from the date you first became delinquent on making your mortgage payments.

How Does a Short Sale Affect Your Credit?

As mentioned previously, a short sale does not appear on your credit score, but rather appears as “settled for less than the full amount.” That said, people with higher credit scores typically experience bigger drops in their credit score.

For example, a person with a 780 credit score may experience a drop of 160 points in their credit score, bringing their credit score down to a 620. That said, a person with a lower credit score of 680 will likely experience a small drop in their credit score of approximately 100 points, bringing down their credit score to 580. The takeaway is that the higher your credit score, the bigger the point drop.

Also, the effect that a short sale will have on your credit report depends on whether you missed payments on your mortgage prior to your short sale. If you missed payments on your mortgage, the missed payments on your account were probably reporting to the credit reporting bureaus, dragging your credit score down. Mortgage lenders typically do not allow people to short sell their home prior to proving that they are indeed in financial distress and are therefore missing payments on their mortgage. So, the missed payments will bring your credit score down.

Also, after your card issuers see that you have a short sale on your credit report and missed payments, they may lower your credit limits because you have become a bigger risk to them, further lowering your credit score, especially if you have high credit card balances. This is so because when your credit limits are lowered, your credit utilization increase, which can cause your credit score to drop.

That said, if you missed payments on your mortgage account, the missed payments will continue to show up on your credit report and affect your credit score for seven years from the date you missed the payments. Also, the short sale notation on your credit report will remain on there for seven years from the date you became delinquent on paying your mortgage account.

How to Improve Your Credit After a Short Sale?

  1. Make your payments on time – Making all of your payments on your credit cards and loans is the best thing you can do to improve your credit score. Your payment history accounts for 35% of your credit score, so make your payments to improve your credit score. Missing a single payment could significantly hurt your credit score. If you have missed payments on your mortgage account, make sure to pay all of your other accounts on time.

  2. Reduce your credit utilization – You should keep your credit utilization below 30%. That is, you should not use more than 30% of your available credit. Keeping your credit card balances low will help you improve your credit score. If your credit utilization exceeds 30% of your available credit, it will hurt your credit score. This is the second most important factor, accounting for 30% of your credit score. So, you should take the necessary steps to lower your balances to see an improvement in your credit score.

  3. Don’t apply for too many new accounts – If you want to improve your credit score, you should avoid applying for too many credit cards and loans. This is so because each time you apply for a credit card or loan, the lender will place a hard inquiry on your credit report. Although a single hard inquiry will result in a 5 to 10 point drop in your credit score, if you submit too many applications within a short period of time, the applications will result in a substantial drop in your credit score. So, only apply for the accounts that you need and check the requirements for the lender before you apply so that you’re only applying for accounts that you’ll be approved for.

  4. Keep old accounts open – The older the average age of all of your accounts, the better your credit score will be. The age of your accounts makes up 15% of your credit score. The credit reporting bureaus reward individuals with older accounts with a higher credit score. So, although it may be tempting to close down an old account that you barely use, keeping it open could improve your credit score, so don’t close it down unless absolutely necessary.

  5. Monitor your credit – If you don’t already, you should get into the habit of monitoring your credit report. This keeps you informed as to the health of your credit, as well as whether any inaccuracies appear on your credit report. If you find that there are inaccuracies or derogatory items that don’t belong to you on your credit report, you should dispute them with the credit reporting bureaus displaying the inaccurate information. This keeps your credit file clean and improves your credit score.

How Long Does it Take to Improve Your Credit Score After a Short Sale?

If you have missed payments and a short sale on your credit report, your credit score will begin to improve approximately 24 months after the short sale has been added to your credit report. The biggest improvement to your credit score will occur once the short sale is removed from your credit report. Typically, a short sale will remain on your credit report for seven years from the date you first missed a payment on your mortgage account. After the seven-year period, the derogatory information will automatically be removed from your credit report and you should notice a significant improvement in your credit score.

Credit Score Planet Frequently Asked Questions

1. Can you get a short sale removed from your credit report?

You can only get a short sale removed from your credit report if there is inaccurate information about the short sale being reported on your credit report. However, absent incorrect information, it will be extremely difficult to have derogatory information related to a short sale removed from your credit report.

2. How long does it take for a short sale to be removed from your credit report?

It takes 7 years from the date you first missed a payment on your mortgage account for a short sale to be removed from your credit report. Typically, derogatory information only remains on your credit report for 7 years.

3. How bad does a short sale hurt your credit?

A short sale can cause a drop of 150 points or more in your credit score, so it’s a very bad event that you should try to avoid.

4. Can you buy a house after a short sale?

Yes, you can buy a house after a short sale, but some lenders will want you to wait for at least 2 years before they can approve you for a new home loan. That said, some lenders may be willing to work with you, depending on the type of loan that you apply for and the amount of the down payment you’re willing to make.

5. Why is a short sale bad?

A short sale is bad because it causes a significant drop in your credit score and places derogatory information on your credit report that will cause some lenders to avoid working with you.