A short sale negatively affects a debtor's credit when the short sale is reported on his credit report, lowering his score and remaining on record for up to seven years, states Realtor.com. Most lender's report the sale as "settled," which indicates the full amount was not paid, However, debtors can try to negotiate with the lender to report the sale as "paid," so that it does not reflect so badly on the credit report.
A homeowner's credit score could drop between 85 to 200 points, and this drop largely depends on whether the mortgage has been paid on time prior to the short sale, and on the homeowner's previous credit score, notes Realtor.com. Someone with a higher score may see a more significant drop than someone with a lower score, because a short sale indicates a potential for future defaults on other loans. This is especially true if the homeowner with a lower score has a history of making his mortgage payments on time. A pattern of late, partial or non-payments on a homeowner's mortgage can also contribute to a lower score when combined with the short sale.
Some homeowners choose a short sale over a foreclosure because they believe that short sales do not have as much effect on their credit records, states Realtor.com. Both a short sale and a foreclosure can lower a credit score, but the homeowner can rebuild his credit score over time by reducing debt, obtaining a secured credit card and paying bills on time.