Credit Impact Of Loan Modifications

Credit Impact Of Loan Modifications

This month, September 2009- there is a new guideline on reporting loan modifications to credit bureaus for lenders. 

Lenders can not report a loan modification as a 'partial payment' on your credit report. Reporting you as making a 'partial payment' can lower your credit score by over 50 points according to the spokesman for FICO- Craig Watts. 

This reporting can also stay on your credit report for up to seven (7) years.

Why does this matter? Well, it may not matter if getting the loan modification is going to make the difference between you being able to make your house payments or not. Sometimes the most important thing is not credit but a place to call home.

But if this is some process in which you want to you use in order to sell and buy another home- it may backfire on you. The lower your credit score the higher the interest rates you will get charged for mortgage loans, credit cards and everything else. Even auto insurance rates are tied to credit scores.

Lower scores during this time include the reaction of getting notices in the mail that your credit lines and credit cards limits have been reduced or your credit line has been canceled altogether.

Many landlords will charge more for deposits and you won't get the $99 move in specials if your credit score is low.

The loan modification credit reporting change applies to the lenders who use the Federal Making Homes Affordable program; this includes all the major lenders. The guideline is voluntary which means you could negotiate with your lender to not have them report your loan modification as a 'partial payment'. Of course, that is sometimes like pulling teeth if they set up their policy to report this negatively.

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Copyrighted © 2009 By Katerina Gasset- All rights reserved.

Credit Impact Of Loan Modifications- was first published on South- Florida-Luxury-Living.com.