Home Loan Modifications and Credit Scores

By: Timothy McFarlin | Published: May 18th, 2010 | Category: Loan Modification

Requesting home loan modification assistance does NOT affect a person’s credit score. Being approved or denied for home loan modifications does NOT lower a person’s credit score. The simple act of requesting assistance from a lender will never affect a borrower’s credit score. This is not to say, however, that a person’s credit score will not be affected by the circumstances relating to their need for help. If a person gets to the point of having to request a loan modification, chances are that they have already missed some of their most recent monthly payments, which will lower their credit score.

The nice thing about home loan modifications is that even though they will not lower a person’s credit score; they can directly impact a credit score for the better. Once home loan modifications are approved by lenders, borrowers immediately begin making lower and more affordable payments. Lower payments means the borrower is more likely to make all future payments on time. On time payments directly reflect on a person’s credit score. Even if a few payments were missed before a loan modification request was approved, the fact that subsequent payments are made on time will repair the damage done by the missed payments. A borrower with a few blemishes in their financial history may also be surprised to see their credit score rise higher than ever before once their monthly payments are made more affordable. Making payments on time is the best way to raise a credit score, so if the borrower can keep up with their lower monthly mortgage payment while using the savings from the modification to pay off other debts, the borrower will see their credit score begin to repair itself after a relatively short period of time.

Home loan modifications can’t directly lower a person’s credit score because a request for a loan modification is actually a request for a lender to agree to a change to the original terms of a mortgage contract. If both parties agree to make a change to a contract, one party can’t be penalized by the other. Any borrower who is told by their lender that requesting a loan modification will lower their credit score should seek legal assistance from an experienced attorney. Lenders often treat their borrowers differently than they treat the attorneys representing their borrowers. Some lenders will lie through their teeth to their borrowers because they know that their borrowers often lack the legal knowledge necessary to go toe to toe with their lies. Having an attorney represent the interests of a borrower is a great way to make sure that the borrower receives the fair and impartial treatment of a lender. If the lender decides to continue lying to a borrower and his or her attorney, the lies are more likely to be caught and countered by the attorney than by the borrower on their own.

One of the most important things to remember about avoiding foreclosure is that asking for help should never be avoided. Ignoring a problem is far worse than getting help for a problem. While asking for home loan modifications will not lower a credit score, continuing to miss payments and pretending the problem will go away can have irreversible effects.

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