How’s Business? Short sales affect credit

By Joseph Palumbo III

I go weeks hearing the term “short sale.” People ask, “Can a short sale hurt my credit rating?” or “What are the ramifications of my entering into a short sale?”

In most cases, the first thing out of everyone’s mouth at the first sign of financial turmoil is, “Short sell the property and give it back to the bank if you can’t afford it.” That may not be easy to accomplish if you cannot prove to the bank you qualify for being in financial duress. Short selling your home depends on your individual situation.

A short sale will give you closure to the situation, which in many instances is what the person who is forced to sell a home is looking for. There is also a tough psychological side to committing to a short sale. The sale in theory will not hurt you because you are terminating a line of credit as well as the amount of monies made available to you.

Does a short sale hurt your credit? Remember your FICO, or credit score, is made up of a percentage of different factors. Thirty-five percent of your FICO is calculated by making on-time payments, even if it is the absolute minimum permitted. Thirty percent is based on debt owed and what amount of credit is available to you.

The smaller the debt, the bigger credit is what you are aiming for. Fifteen percent is based on the length of your credit history and having accounts opened years ago may actually be beneficial. Ten percent is based on new accounts and inquiries on your credit and 10 percent is based on the balance on the types of loans and credit you have.

So How’s Business regarding whether or not a short sale can you hurt your overall credit? Based on your individual credit history, having to short sale your home may not hurt your overall credit that much. It will be a dent in your credit rating, but a short sale dent compared with a foreclosure or deed in lieu. Either rate could smash your overall credit rating. If your house has realistically become a debt you can no longer handle, short selling is probably the best way to go. Find a solid real estate agent who can handle and negotiate the situation for you.

Contact Joe Palumbo at 516-297-4034 or [email protected].

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