Your Credit Score After A Short Sale

The Credit Restoration Model

After a Short Sale or a Bankruptcy.

Selling a property “Short” and relieving yourself of the burden of paying on a non-performing asset, which in all likelihood will continue to decline for the foreseeable future, is one of the shrewdest business decisions you can make. Contrary to popular belief there is no direct negative impact to your credit score because of a short sale. The impact to your credit score is derived from the late mortgage payments that usually accompany the short sale process. Late payments of any kind: mortgage, credit card or auto loans are all treated equally. A late payment of any type only affects your credit for 24 months; with the impact lessening after just 12 months. This 24 month period is dependent on all your payments being paid on time after the short sale is completed or the bankruptcy is discharged. Following this model will have your risk score right back up into the 700’s in just 24 months.

This is also the credit restoration model for those who filed a bankruptcy. A bankruptcy is the legal right to fail, with the ability to move forward again, without the burden of unsecured creditors. A bankruptcy is not the dooming and damning experience that most people are led to believe that it is by the government, lenders and other creditors. Many businessmen have emerged from bankruptcy to start over and create dozens, if not hundreds, of new jobs. Remember the old saying “If it doesn’t kill ya it’ll make you stronger.” Nobody’s ever died from bankruptcy.

Some notable people who have emerged from bankruptcy and gone on to do god and great things are: Larry King (twice), Walt Disney, Donald Trump, Peggy Flemming, Kim Basinger, Henry Ford, Rembrandt, Joe Conseco, Henry Heinz (ketchup), Mark Twain, Abraham Lincoln (twice) and hundreds of others. Consequently, if you’re thinking of filing a bankruptcy you’re in good company.

There are 3 simple steps to credit restoration and the result will be a risk score in the mid 700’s within 24 months. This is an adaption of the Wells Fargo Credit Restoration model modified, and improved, by what I’ve learned from my clients to get the maximum results.

Make sure that your home was indeed sold short, and not foreclosed upon. The difference is that foreclosure assumes that you lost control of the house and surrendered the property to the lender, and short selling assumes the lender took a dollar amount less than the outstanding balance of the loan. Foreclosure will prevent you from buying another home for at least five years, but it can be cut significantly shorter if you sold the home short.

Step 1.

Open two new secured credit cards. This will require a deposit with the bank issuing the credit card that will be equal to your credit card limit. A $500 deposit will have a $500 limit; however, the deposit is NOT used to make the payments. It is additional security for the bank that the payments will be made. You will still be obligated to make your monthly minimum payments. I suggest that whatever amount you open the cards with don’t EVER charge more than 35% of your limit for the first 24 months. Be sure to USE the cards, and MAKE the monthly payments ON TIME!
DO NOT OPEN THESE ACCOUNTS UNTIL AFTER THE SHORT SALE OR BANKRUPTCY IS COMPLETE!

Step 2

Buy something on an installment loan. A car, motorcycle, jet ski, couch, a piece of art, anything; but it has to be paid in equal installments over at least the 2 year restoration period.
DO NOT PAY IT OFF UNTIL AFTER 24 MONTHS HAVE PASSED!

Step 3

Make ALL your payments on time: this is absolutely critical!

Follow this restoration model and your FICO scores will be in the 700’s in just 24 short months!