Monday, March 28, 2011

How a Loan Modification or Short Sale Affects Your credit score?


Bloomfield, NJ – Your credit score will be affected by late mortgage payments and a short sale. However, there are 2 things that are considered horrible on your credit report. Foreclosure and bankruptcy.

Discover how other sellers successfully did a short sale to avoid foreclosure by clicking here.

A foreclosure or bankruptcy will almost immediately lower a credit score by around 100 to 120 points. (The number is not hard and fast – it all depends upon what the score was before the foreclosure, and other factors that the credit bureaus don’t like to share.) The way that they write the algorithm, a foreclosure will keep on pushing your score down for the next 2 years! A foreclosure can also stay on a credit report for 7 years.

Short sales are different from a foreclosure. Short sales and loan modifications by themselves do not hurt a credit score (depending on how they are reported.) It is the missed payments that ding your credit report. How a short sale is coded/reported to the credit reporting bureau does make a difference in the affect it has on your score. It could be reported as a charge-off, a 120 day late payment, or a settled account.

Any of these are dings on the credit report, averaging 100 points. Here is the good news. The way they do the algorithm, it will damage your score for a shorter length of time than the 2 years a foreclosure does.

How a short sale is reported to the credit bureaus is something that can be negotiated as part of the process of the sales negotiations. Good negotiators can have a positive impact here. But, in the end, the credit score should not be the first thing to consider when facing the decision to short sale a home. You need to look at what is best for your family financially. The credit score is secondary to that.

Get advice from a trusted source, and then make an informed decision.

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