Credit Infocenter

Minimize Damage to Credit Score From a Short Sale

By: Staff

Last Updated: September 25, 2017

When you’re struggling to make your mortgage payment every month, the relief that comes from a short sale can be worth any hit your credit score is going to take. That said, there are things you can do to minimize the damage.

Know What You Are Getting Into

Though a short sale may sound preferable to foreclosure, your credit score is still going to take a big hit. While your credit report listings won’t say short sale, they will state that you settled the debt for less than what you owed, and no potential creditor likes to see that. While there is no set number of points you can expect your score to drop, it’s reportedly on par with the same damage you might see from a foreclosure. Also, a short sale will show on your credit report for up to 7 years, so you’re in it for the long haul.

Make Mortgage Payments Until Short Sale is Final

Lenders are not required to approve a short sale on your home loan. A good incentive for them to do so, however, is to see that you are staying current on your mortgage payments. Plus, you’ll avoid the negative impact of late mortgage payments on your credit reports.

Stay Current With All Other Bills

With a short sale on your credit reports, the last thing you need are any other negative listings. Stay current on everything else, from your car payment and utilities, to credit card bills.

Pay Down Credit Card Debt

The lower your credit utilization ratio, the better you credit score. So give your credit a boost by paying down (and off) any existing credit card debt.

Keep Credit Card Accounts Open

Just because you pay off a credit card doesn’t mean you no longer need it. An open, paid-off credit card can significantly improve your credit utilization ratio and, in turn, your credit score. The only time to close a credit card account is if you find it impossible to resisting maxing it out.

Keep Using Credit Card Accounts

Letting an open credit card account sit idle means missing out on opportunity to significantly improve your credit score. Use the account at least once a month, but only on things you would have to pay for anyway, like gas or a utility bill. Then simply pay off the balance every single month. That’s how you show responsible credit usage and, in turn, build your credit score.

Attack Old Debt via Debt Validation

Before paying off old credit card debt that was sold to a collection agency, try debt validation first. When a debt is sold, the documents proving your ownership of the debt don’t always change hands. So make the debt collector prove you owe the debt. If they can’t do that, you’re not legally responsible for it and it must be removed from your credit reports.

Negotiate Debt Settlements

You may be surprised at just how little debt collectors will accept to settle a debt, especially if they don’t sense that you’re in any rush to do so. That said, it can be an intimidating process, and one you could pay someone else to do. Fortunately, there is nothing a debt settlement company can do that you cannot do for yourself. Here’s how to settle debts on your own.

Build Emergency Fund

If you’re in the habit of using credit to pay for unexpected expenses, from car repairs to medical bills, then you need to build a bigger emergency fund. While six months of living expenses may be ideal, if you have nothing in your emergency fund at all, shoot for $500 to $1,000 to start. If you set aside just $25 to $50, you’ll be there before you know it.

Build New Positive Credit

After your credit score takes a hit in the wake of a short sale, you will have trouble qualifying for new credit. However, there are other ways of making a positive impact on your credit score. Try a secured credit card, becoming an authorized user on someone else’s credit card, co-signing on a loan, and/or peer-to-peer lending.

Monitor Credit Reports and Scores

Everyone should check their credit reports at least once a year. It’s free to do so via However, when you’re recovering from a short sale (or any other significantly negative impact on your credit), it’s a good idea to review your reports more often, say two or three times a year. Beyond that, check your credit scores, too, so you can see if and when your positive credit behavior starts making a difference.