Will it have more of an impact on my credit report if I stop making my mortgage payments and become 90 days or more delinquent during a short sale process? Or will it be the same because the bank will still report it as a settled debt in the end?
It is always best to keep your mortgage payments current, even when going through a "short sale."
As you recognize, a "short sale" is actually a term used to describe the process of settling the mortgage debt for less than owed. The term "short sale" does not appear in a credit report. Instead, the mortgage account will typically be reported with a status of "settled."
You are correct that settling a debt will result in the account being considered negative, even if there were no prior late payments. However, most creditors will report each individual late payment that is made on an account. The history of late payments will remain for seven years, even after the account is settled and closed.
Any late payments made on an account have an impact on your credit report and scores. So, if your mortgage loan shows a history of delinquency in addition to the settled status, it could have an even greater negative effect on your credit scores.
Before agreeing to the short sale, be sure that you understand all the terms of the agreement between you and the lender. Make sure you understand exactly how the account will be reported and what the effect will be on your creditworthiness.
Thanks for asking.
The "Ask Experian" team