Credit Scores

• Selling a house at a loss means that you didn't satisfy the debt or pay the loan in full. While your lender may agree to the deal and accept a lesser amount for the property, they may also report the short sale to the credit bureaus. There are clear pros of a short sale. Foreclosures are public and can cause embarrassment and shame. Short sales are private and you can sell the home without anyone knowing the details. But even though short sales aren't as severe as foreclosures, credit scores will drop because you didn't pay the mortgage as agreed.
  
  

Negotiating With Lenders

• The way a mortgage lender chooses to update your credit report after the short sale determines the impact on your credit score. As discussed, reporting the account not paid decreases your credit score. On the other hand, if your mortgage lender reports the mortgage as paid and doesn't make mention of a short sale or debt settlement, your credit score will not suffer. Talk to your lender to see if they will keep the settlement off your credit profile. If necessary, use a real estate attorney to negotiate with your lender.
  
  

Buying Another Home

• You may consider doing a short sale and then buying another, less expensive home immediately thereafter. If your home loan lender reports your prior mortgage as "settled" on your credit report, financing another house may prove challenging. Other lenders will know that you were unable to pay your old mortgage loan, which can influence their decision on your home loan application.
  
  

Fixing Credit History

• Like any other negative remark on your report, short sales can affect your credit score until you rebuild your credit rating. Credit improvements take time. But every time you make an on time payment or pay off a debt, you slowly improve your rating. If you are renting a property after a short sale, ask your landlord to report your rental history to the bureaus. Keep up good credit habits and you'll regain any points lost after a mortgage short sale.