If I’m Getting Ready for a Short Sale, Do Late Payments Matter?

Family Buying a Home
Dear Experian,

If I'm planning to do a short sale but have not yet gotten behind on monthly payments, is there any advantage to staying up to date on payments? Would my credit get damaged if I paid late? If it doesn't really matter, then wouldn't it be wiser to just stop payments now and save the money?

- MTS

Dear MTS,

Payment history is the most important factor in calculating credit scores. Allowing your mortgage payments to become delinquent (fall behind) will have an immediate, severe impact on your credit scores.

If you entered a mortgage modification program and had never missed a payment, your scores might not be negatively impacted at all. However, some lenders may require that your mortgage be delinquent before they will enter into a loan modification or a short sale agreement with you.

What Is a Short Sale?

The term "short sale" describes selling your home for less than you owe on the mortgage. The lender is agreeing to a settlement amount for the mortgage, and the mortgage account will usually be reported as "settled for less than full balance." The term "short sale" never appears in a credit report.

Any account reported as settled will damage your credit scores, and a settled mortgage will have an even greater impact than other types of settled debts. On average, a VantageScore® will drop between 120 and 130 points after a short sale. By comparison, a foreclosure drops a VantageScore on average between 130 and 140 points.

Talk to Your Lender Before Missing Payments

Before going forward with a short sale, speak with your lender about its requirements and how the account will be reported. If your lender states it will not be reported in a negative status, you definitely don't want to miss payments. Late payments will remain on your credit report for up to seven years.

Even if it will be reported negatively as a settled account, continuing to make all the payments on time may help reduce or delay the impact to your credit scores. It also may be viewed more favorably by current and potential lenders reviewing your credit report in the future.

Thanks for asking.
Jennifer White, Consumer Education Specialist

The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team may include it in a future post and may also share responses in its social media outreach. If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well.

Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address.

To submit a dispute online visit Experian's Dispute Center. If you have a current copy of your personal credit report, simply enter the report number where indicated, and follow the instructions provided. If you do not have a current personal report, Experian will provide a free copy when you submit the information requested. Additionally, you may obtain a free copy of your report once a week through December 31, 2022 at AnnualCreditReport.