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Credit Score News, Tips & Advice « Credit Scores > Credit Score Advice > Short sale is a better option for your credit score

Short sale is a better option for your credit score

By George Hauser
Published: Thursday, September 10th, 2009

There is much to know about the world of loans, debts and credit. It’s important to absorb as much information you can about what affects what, dipping your toes in the water, before actually jumping in. One of the most basic concepts you need to fully understand is the credit score and credit report.

The credit score is the numeric representation of your credit report. The higher score you have, the more attractive you’d be among creditors and lenders. But apart from that, credit score also has impacts on insurance application, and even employment. As mentioned, the fluctuations in your credit score are caused by the information you put into your credit report.

There are many things in a credit report. Everything in it affects your credit score. This means that if you want to raise your credit score, there are many actions you should consider taking and at the same time avoiding. The bottom line lies on good credit management skills. But apart from the obvious, a credit score advise is to know the impacts of foreclosures and short sales on your credit report.

A foreclosure is a legal process that you go through with the bank. If you no longer can pay your debts, you legally allow the bank to take possession of and sell your mortgaged property. This is recorded on your credit report and stays there for seven to ten long years. And of course, the length of time before you get into foreclosure, or the length of time you were not able to fulfill your obligations to your creditor, are also recorded on your credit report.

Foreclosure is different from a short sale. The latter is selling your mortgaged property less than its loan balance. And this will not be permitted by most lenders that easily. Both have their own pros and cons, but they nonetheless affect your credit scores. Helpful credit score advise is to avoid both circumstances as much as possible and stick with the good old credit responsibility.

However, when you do find yourself in the painful situation of having to choose whether to foreclose or do a short sale, here are helpful credit score advise that would make the pain a little more bearable for your credit score.

Experts say that if you should, go with alternatives to foreclosure when you find yourself in a tangle in paying debts. This is primarily because foreclosures can greatly reduce your credit score; that is from 175 to 300 points. Though there are more difficulties in having a short sale, there are still ways you can have it over a foreclosure. One is to negotiate with your lender without missing any of your payments and to ask the lender to report the sale as “paid in full”. Also, remember that there are also qualifications for a short sale.

These include: the decline of the property’s market value, the mortgage is in or near its default status, you have fallen on hard times like unemployment, divorce, or bankruptcy, and the lat is your lack of assets.

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