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Short Sale Of Homes Has No Impact On Credit Score

By Brian Anderson
Published: Monday, July 19th, 2010

98843931The internet has a lot of websites telling people that short sales of homes will result in better credit. Beware of such information.

Short sale means selling your house for a value lesser than what you owe to the bank. Rather than improving your credit score, it will wreck it.

VP of FICO Scores at Fair Isaac Corp based out of Minneapolis, Tom Quinn, said that foreclosures and short sales is a negative indicator to the bank and reduces the credit worthiness of the person. This is an evident sign of a prospective credit risk. It impacts the FICO scores adversely and this can be detrimental to your financial well being since most of the lenders consider these scores before offering credit. He went on to say that any information telling customers that short sales can work in your favor are false and baseless.

The credit scores reveal a lot about the customer to the bank. It shows them the ability of the person to repay the debt. It will also show the lenders the frequency of late payments, the severity (whether there were instances of foreclosure and bankruptcy) and the number of late payments in the last 12 months. Residential Mortgage Group’s Alex Stenback, a mortgage broker in this company that is based out of Minnesota, went on to say that foreclosures and short sales bring about loss to the lenders and hence tend to adversely impact your credit score.

However, there have been times where opting for the short sale has proven to be in the benefit of the consumers. If the pending loan amount is the same as the value of the short sale, opting for such a sale will not impact the consumer significantly. But, if the person has not made the mortgage payment for the last six months and then opts for a short sale, the credit score is bound to go down.

Fair Isaac Corp, however, stands by the fact that despite the short sale being made in the absence of delinquencies there will be an impact on the credit score that cannot be avoided.

LSS Financial Counseling Service’s Program Director, Dan Williams, said that the assumption that short sales will enhance the credit score is posing a major concern because people are opting for it despite foreclosure being a better option. He went on to say that people are being foolish if they opt for short sales when they have a poor credit score.

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