Q. My daughter, her husband and three children live in another state. Her husband lost his job and has finally found another one. The property value of their home declined a lot during the past few years. Fortunately, they were able to sell their home through a short sale. However, my daughter says their credit score has gone down significantly due to the short sale. What advice can I give them about rebuilding their credit now?

A. A short sale really can be a good option for many people in the same situation as your daughter and her family. However, a short sale does affect people’s credit scores. (People have a variety of credit scores, not just one score.) According to the national credit-reporting agency Experian, a short sale can, on average, decrease the seller’s credit scores by 110 to 120 points. This occurs because, in a short sale, an account is settled for less than is owed. That information is reported negatively on the seller’s credit reports and affects his or her credit scores.

With effort and a little time, your daughter and her husband can rebuild their credit. One of the most important steps for them to take is to pay all their creditors on time from this point forward. Because that is such an essential part of rebuilding credit, the first thing your daughter and her husband should do is review their budget. They need to make sure they have enough money to pay their current creditors on time every month. If they don’t, they need to adjust where they are spending their money each month. Their credit will not improve if they pay one or more of their creditors late every month.

Your daughter and her husband - or anyone who is making the effort to pay their accounts on time every month - need to be sure they have a savings account. They want to put money in their savings account as a cushion. If something goes wrong, they still want to be able to pay all their creditors on time, even through difficulties. A savings account will allow them to have some money that can help cover unexpected expenses, so they still have money to pay their bills.

Once your daughter and her husband have some money in savings and are paying all their creditors, they should begin paying down or reducing their debt. They can do this by making double payments on debts, or paying off one creditor at a time. Often, seeing the number of creditors they owe go down helps keep people motivated as they repay their debts. Paying their creditors on time and reducing their debt will have a positive impact on their credit scores.

Re-establishing credit isn’t difficult. It just takes effort, time and consistency.

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Bonnie Spain is the executive director of Consumer Credit Counseling Service of the Black Hills, a United Way member agency. For more information, email credit@cccsbh.com.

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