I am active duty military and anticipating a permanent change of station this year. I am considering doing a VA compromise sale on my home in Tucson, as it is underwater. I am current on the payments and am wondering how much a VA comp sale will hurt my credit?
The term “short sale” or “compromise sale” is used to describe an agreement between you and your lender to sell the house for less than is owed on the mortgage. Neither term appears in a credit report.
Short Sale May Appear as “Settled” On Credit Report
Instead, the mortgage account may be reported as “settled,” or “settled for less than full balance.” It will also show any history of missed payments. Even if you remain current leading up to the sale, any account not shown as” paid in full as originally agreed” is considered negative. A mortgage debt not paid in full can have a substantial negative impact on credit scores.
Rebuilding Your Credit After a Short Sale
Time is the key for rehabilitating your credit history. If you determine that a short sale is the best option for you, there are some things you can do to begin rebuilding your credit history right away:
- Make sure all of your other debt payments are always made on time. Your payment history is the single most important factor in credit scores.
- Reduce any debts you have as much as possible, especially credit card debt. The lower your credit utilization rate, the better for credit scores. Your utilization rate is calculated by taking the total amount of your balances on revolving accounts and dividing it by the total amount of all your credit limits.
- Continue to use your credit cards, keeping your balances low and paying in full each month. The positive, current activity can help offset the negative history for your mortgage, and in time your credit history will recover.
- Pay off any past due debts. Even if an account has been charged off as bad debt or sold to collections, paying it off is typically viewed more favorably than leaving it unpaid. And, some of the newer credit scoring models no longer count paid collections in their calculations.
- Know your risk factors. When you order a credit score from Experian, you will receive with it a list of the factors that are currently impacting your scores the most. Improving these factors will help improve your credit scores overall.
Thanks for asking.
The “Ask Experian” team