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Monday February 19th 2018

Loan Modification – Will it Hurt My Credit Ratings?

With all of the benefits of loan modification, homeowners will not be accustomed to one of its major pitfalls. When a house owner modifies an existing loan, there is a negative effect on their credit rating. Credit scores range anywhere from 300 to 850. This numeric rating affects a shopper’s ability to acquire credit, mortgages and even insurance products. In today’s market, to get the simplest rates, one needs a credit score of 740 or higher. Any account or mortgage which has been renegotiated will cause your credit score to fall significantly, even supposing you haven’t missed a payment. Once the modification is reported to the credit bureau, your score nosedives. Formerly, those that entered into any variety of reduced payment plan represented a greater credit risk. If a borrower has a high score, the impact of modification can be greater than those with lower credit scores.

A lower credit score could have many ramifications. Personal credit lines and credit card companies can reduce your borrowing limits. They could even freeze your accounts so that you simply are unable to take advantage of them. While helping you on the mortgage end, modification may also hurt your credit worthiness.

Most borrowers will still feel that some great benefits of modification outweigh this negative aspect and that in time, they’re able to build their score up again. The difficulty is that almost all consumers are usually not informed of this possibility just before modifying. For people who are self-employed and rely upon personal or business credit lines, it might probably become a major problem. If they place confidence in credit lines to keep their business afloat, limiting their accessibility could ruin their income.

Credit bureaus have certain guidelines to follow once they are advised of a modification. These guidelines states that homeowners inside the probationary period of modification ought to be reported as being current with a stipulation that they’re on a partial payment plan. This will likely eliminate the word ” delinquent” from their file. Once a homeowners is a month late, then they’ll be listed as delinquent until the account is cited-to-date again. Within the meantime, credit companies are scrambling to classify modified mortgages under a new category to attenuate any negative ratings on credit.

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