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Ginger Rolst…, Real Estate Pro in San Rafael, CA

What's the best course of action to restore a dented credit score as a result of a short sale?

Asked by Ginger Rolstad, San Rafael, CA Mon Jan 28, 2013

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First, make sure it is correctly reporting as a short sale. Often when I check clients credit report after they've had a short sale I see it reporting as a foreclosure, which damages scores more than just a short sale. It all comes down to what is called the "Manner of Payment" (MOP), which is a coding system that the credit agencies use to signify how delinquent an account was in any given month. The MOP's go from 1-9, with 1 being an on time payment (made within 30 days of the payment due date), 2 being 30-59 days late, 3 being 60-89 days late, 4 being 90-119 days late, and 5 being 120 days or more late, and an 8 reports as a repossession and a 9 reports as a charge-off or collection. Short sales should not report as an 8 or 9, and if the account went seriously delinquent (120+ days alte) before the short sale, then a MOP of 5 would be the correct reporting. You can read more about MOP's at http://www.transunion.com/docs/business/HowToReadCreditReport.pdf including a sample credit report.

Second, is to re-establish credit by either maintaining on time payments on all other accounts that remained open. Or if there aren't many (because there weren't many in the first place, or because many of them went into collections) then it's good to have at least 3 revolving accounts (credit cards, store cards) reporting on time payments to credit each month and if possible 1 or 2 installment loans (car loan, student loan, even a small personal loan from a bank) - as diversity accounts for a small portion of one's credit scores. It's also good to keep revolving balances very low (there is some disagreement on how low to keep balances, but generally less than 5% of the credit limits pretty much everyone will agree with), and at least 30 days before credit is checked I recommend paying them off so a $0 balance reflects to get the maximum score increase.

Shane Milne | Lending in all 50 states | NMLS #81195
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