How can I build my credit score after a short sale?

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    Rebuilding your credit score after a short sale will hinge on two things: the extent to which you can isolate your housing problems, and how consistently you pay all your bills in the wake of your short sale.

    When a mortgage lender approves a short sale, it means that the bank has agreed to accept an offer to purchase the home for less than the existing mortgage balance. Essentially, the bank is agreeing to take a loss on the mortgage. The downside to this is that the bank can (and often does) report to the credit bureaus that your mortgage was not paid in accordance with the original terms of the loan.

    Some homeowners mistakenly think that a short sale (or even a deed in lieu of foreclosure) is somehow better for their credit rating than is a foreclosure. Unfortunately, that simply isn't true. According to FICO, creator of the FICO score, with a short sale, deed in lieu and a foreclosure, all three are equally adverse for your credit once reported to Equifax, Experian and TransUnion.

    So since your short sale will be a negative in and of itself, one of the best ways you can shore up your credit is by isolating the housing issues you had. In other words, even if you have a blemish on your credit related to your mortgage, make sure that your other credit accounts - such as your credit cards, auto loans, and other loans - remain up to date and are in good standing.

    Finally, following a short sale, it's important to be especially diligent in handling all your monthly bills. FICO officials say 35 percent of your FICO credit score is tied to your payment track record. So simply paying your bills on time as agreed can go a long way toward boosting your credit rating even after a short sale.



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