A credit report holds an important place in the financial life of a person. It is important as a decision base to undergo several financial matters. Earning good FICO scores is important to gain financial benefits like taking loan, applying for a job, going for business partnership, purchasing an insurance policy, renting a home and making purchases in installments like property and vehicle. It is crucially significant to keep yourself up to date in financial affairs.

Otherwise, conditions get worse and things go out of hands when timely payments are not made and matters are not efficiently responded. In the real estate matters when payments get delayed and are piled up in a heap, they become troublesome resulting in the shape of foreclosure and short sale.

A short sale is an agreement between the lender and the current owner of a home. It is a state of delinquency when a home owner fails to pay his mortgage and asks for an agreement. Generally the agreement is in between the delinquent person and the bank, which lends the money to acquire a home. The home is offered for sale for less than the amount owed, in order to get it back on a lesser price.

Many times a short sale is mingled with foreclosure. Foreclosure and short sale are two different things altogether. In a foreclosure the house is taken back when the house’s current owner falls way behind in payments. In foreclosure, the current owner also does not have any option of taking the house back, as after repossession from the lender or bank, the house is put on sale in the open market without any chances of some sort of agreement between the lender and the current owner.

A foreclosure is a more terrible thing than a short sale. Because in a foreclosure the amount paid is completely lost and no chances of recovery are offered. Both, foreclosure and short sale appear on a credit report as black marks; greatly disgraceful and dishonoring. Though they can be an effective money saving method, yet it can be a momentary relief. They can be very harmful on the long run as they are seen as debt forgiveness by many lenders.

It is recommended to seek professional advice from a lawyer before going for a short sale. A short sale is as bad as bankruptcy, and it can damage the credit report for a long period. A person should not opt for a short sale easily, it can significantly damage a FICO scores by 200 to 300 points and sometimes from 75 to 100. Another thing that hits the credit report in this regard is the report stating:”paid settled for the amount less than the amount owed”.

With a short sale on a credit report, one might not be able to purchase another home for two years. The lenders/sellers keep on monitoring credit reports of the buyers to ensure timely receipt of payments. Whilst, short sale is not a likely solution to financial problems, it still is less expensive than a foreclosure.