Many homeowners today are facing foreclosure on their homes and are opting for a loan modification in order to keep their homes and achieve a mortgage payment they can afford. One concern that many people seem to have when applying for a loan modification is how it will affect their credit score. Most people are in a position where a loan modification would help, but hesitate to pursue one for fear of ruining their credit.
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In the beginning this may seem to be a minor issue. After all, a foreclosure on your home is pretty much the worst thing that can happen to your credit. So doing whatever possible to avoid this may seem like a no-brainer. But for those of you who depend on good credit, such as small buisness owners who must maintain a healthy credit score to keep operating. So the fact that your credit could possibly be damaged is a legitamate reason to be concerned.
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In most scenarios, homeowners who are seeking a loan modification are already going to be in some kind of financial crisis. Many times you will have already begun missing payments or possibly making late payments, so you are already suffering some negative effect on your credit rating. In fact, some lenders will often tell you that they can not even consider a loan modification until you begin to fall behind on your payments.
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One particular credit problem has currently been associated with trial loan modifications under Obama’s new Making Home Affordable Program. In a trial modification, the borrower recieves a reduced payment schedule which, if maintained and on time for three-six months, can possibly be a permanent solution. However some people are reporting that their mortgage servicers are reporting them as late to the credit bureaus during this period, putting a significant damage on their score.
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But yet in most cases, a loan modification will not have a negative affect on your credit score at all. If your lender decides to help you modify your loan, they have done this to help you avoid foreclosure and stay in the home.
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So even in this economic crisis you will be able to continue making your monthly payments while maintaining your hard earned credit.
Does a loan modification affect your credit score?
About Evan Bedard
Evan Bedard has worked with various law firms since 2007 as a top Countrywide Home Loan modification processor. Evan has been instrumental in helping the various law firms and homeowners save over 800 homes. He is also a mortgage guide in the LoanSafe forum and is helping homeowners daily.
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{ 3 comments… read them below or add one }
I have excellent credit and I am about to enter a 3 month trial period with Wachovia. Can you tell me how much it will ding my credit?
My credit score is ruined due to being accepted by citi for a trial period of loan modification. This means that I payed a lower mortgage amount for 3 months and then was denied the loan modification. During this 3 month period without my knowledge citi was reporting me as being in default with my payments even though they were made on time. Prior to this my credit was stellar. This program is a joke. Now I am worse off than if I had never applied for loan modification. My guess is it’s their way of forcing you to be their mortgage customer because now with damaged credit it will be very difficult to refinance with anyone else.
I had the same problem. Careful. I the lender puts you on atrial for three month it will still report you as LATE. It will affect your credit score. Now, CHASe denied my mod, and my c. score went from the 800 to less than 620.
Nobody told me I was going to be reported as LATE even though I made my trial payments on Time. They even requested to make the payments with cash or western union, CHASE sucks.