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Short sale hurts your credit

Choosing a short sale over foreclosure is difficult. Both take a bite out of your credit rating. But one is easier to recover from.

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By Gerri Willis, Money magazine contributing writer

NEW YORK (Money Magazine) -- Q. We have to relocate because of my husband's job. Our home value has fallen nearly $100,000. We would like to get rid of it, but we don't want to go into foreclosure. Someone mentioned a short sale. What impact would that have on our credit rating?

Gerri Willis, Money magazine contributing writer and host of CNN's "Your Bottom Line," says:

A. A short sale, in which you negotiate with the bank to sell your home for less than you owe on your mortgage, will have a dramatically negative affect on your credit.

A consumer who has been through a short sale could see a drop in her credit score of up to 200 points, essentially the same decrease as if the homeowner had gone into foreclosure, says John Ulzheimer, president of consumer education for Credit.com.

And like a foreclosure, the negative mark will pull down the score for seven years.

That said, if you're underwater on your mortgage and you need to move, a short sale is a better option than foreclosure. Going through foreclosure will make it very difficult for you to get a loan for at least three to five years; if you've done a short sale, you may be able to qualify for a new mortgage within two years.

Got a financial dilemma? Go to cnnmoney.com/helpdesk to submit questions, read the Help Desk archive, and check out Help Desk videos. And tune in to CNN's Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions. To top of page

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