How to Recover From a Short Sale

Losing your home is a very difficult and emotional time. Not only are you dealing with leaving a home you may love, but knowing your credit will be damaged makes the process harder. Banks are often willing to consider a short sale rather than foreclosing on a home. A short sale is damaging to your credit report but is not as bad as a foreclosure. A short sale is when the bank allows you to sell your home for less than the amount owed or the market value.

• 1

  Don't allow any time to go by without actively working on building your credit back up. The damage caused by a short sale will vary based on how good your credit was before the short sale. Ironically, if you have bad credit your credit will not be damaged as much as if you had good credit before the short sale. No matter how much damage you incurred, start immediately to rebuild your credit.

• 2

  Pay any other loans and credit cards on time. Do not allow any payment to be late. Late payments are very damaging to a credit score.

• 3

  Reduce the balances on all credit cards. Shoot for a goal of having your credit card balance less than half of the credit card's credit limit. If you can go below 30 percent, that is even better for your credit score.

• 4

  Open a credit card or get a personal loan or installment loan if you do not have any actively reporting positive credit. You cannot rebuild your credit unless a creditor is reporting your timely payments and low balances.

• 5

  Give yourself two years to fully recover from the short sale. Within 12 months, your credit score should improve and in 24 months, you can even be in the position to purchase another home if you have maintained your credit well since the short sale.