Rebuilding Credit Following a Short Sale
After a short sale, Nevadans may expect their credit scores to drop significantly, but there are steps that they can take to rebuild their credit. In short sales, banks or mortgage companies agree to allow distressed borrowers to sell their homes for less than the balance that they owe on their mortgages. A short sale is thus similar to settling another type of debt for less than the amount owed. If people who already have damaged credit complete short sales, they can expect the impact to be much greater than it might be for those whose credit scores were relatively good before their short sales. It is still possible to raise the scores, however, by using some basic credit repair tactics.
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FICO Score Impacts
Following a short sale, most lenders will report the activity regarding the mortgage debt as settled for less than the amount owed. This may result in a drop in the credit score of between 85 and 160 points. In some cases, borrowers are able to negotiate with their banks before the short sales to report the amounts as paid, which will not have an impact on their credit scores. This type of agreement is normally difficult to secure and may be easier for people who have good credit, have not missed payments and who have genuine hardships to secure.
Steps to Take
Since most people will not be able to secure agreements from their lenders to report their balances as paid, they should prepare to take credit repair actions in order to help raise their scores again. The first step that people should take is to order their credit reports. Everyone is able to get one free copy of their credit reports each year from Experian, Transunion and Equifax, the three major credit reporting agencies. After receiving the reports, people should review them carefully and correct any incorrect information that is contained in them.
Next, people might start rebuilding their credit by turning their attention to their existing accounts. They should not close them. The length of credit history factors into their scores. They should instead focus on making on-time payments and keeping their debt-to-income ratios low. If people do not have existing lines of credit, they might want to get secured credit cards so that they can start establishing credit histories while rebuilding their credit. People should expect the credit repair process to take a couple of years.