Does a Mortgage Modification Impact Your Credit?

In a mortgage modification, the lender agrees to change the terms of your loan so you can more easily afford your monthly payment. This process could make it easier to make your payments, but, in some cases, it can negatively affect your credit score.

Function

• A mortgage modification involves a negotiation process with your lender. Once you fall behind on your mortgage, you can talk to the mortgage lender's loss mitigation department. The lender can look at options to keep you from going into foreclosure or bankruptcy. They might extend the terms of your loan or give you a lower interest rate so your payment can go down.

Late Payments

• To obtain a mortgage modification, you generally have to be late on your payments. The only exception to this rule would be if you recently lost your job and the lender believes your loan could go into default. Once you get to the mortgage modification process, you likely will have already missed a few payments. Late payments can negatively affect your credit history significantly.

Mortgage Modification

• The mortgage modification itself may affect your credit history. In some cases, however, this process has little or no impact on a person's credit. The determining factor is how the lender lists it on your credit report. If the lender reports it as a debt settlement, this could lower your credit score. Some lenders do not report the modification of terms to the credit bureaus and this would not affect your score.

Credit Improvement

• Even though mortgage modification can have a negative impact on your credit, it can sometimes help as well. If you are on the verge of loan modification, there is a good chance you are behind on several bills. If you keep your mortgage payment at the current level, you could not continue making payments. By modifying your loan, you could more easily afford all your bills and get back on track over the long-term.

Scams

• If you are interested in modifying your mortgage, it is best to talk directly to your lender. Some companies advertise that they can assist you with a loan modification or get you out of debt. While there are some legitimate companies out there, many charge a fee for things you could easily do yourself. They may give you bad advice that actually makes the situation worse. Direct contact with the lender is often the best course of action.