With all the benefits of loan modification, homeowners might not be aware of one of its major pitfalls. When a homeowner 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 consumer's ability to obtain credit, mortgages and even insurance products. In today's market, to get the best 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 if you haven't missed a payment. Once the modification is reported to the credit bureau, your score nosedives. In the past, people who entered into any type of reduced payment plan represented a greater credit risk. If a borrower has a high score, the impact of modification will be greater than those with lower credit scores.
A lower credit score can have many ramifications. Personal credit lines and credit card companies can reduce your borrowing limits. They can even freeze your accounts so that you are unable to use them. While helping you on the mortgage end, modification can also hurt your credit worthiness.
Most borrowers will still feel that the benefits of modification outweigh this negative aspect and that in time, they can build their score up again. The problem is that most consumers are not informed of this possibility prior to modifying. For those who are self-employed and rely on personal or business credit lines, it can become a serious problem. If they rely on credit lines to keep their business afloat, limiting their accessibility could ruin their income.
Credit bureaus have certain guidelines to follow when they are advised of a modification. These guidelines states that homeowners in the probationary period of modification should be reported as being current with a stipulation that they are on a partial payment plan. This will eliminate the word "delinquent" from their file. Once a homeowners is a month past due, then they will be listed as delinquent until the account is brought up-to-date again. In the meantime, credit companies are scrambling to classify modified mortgages under a new category to minimize any negative ratings on credit.
For essential tips and facts about how to get approved for a Loan Modification, Visit our simple, no nonsense loan modification guide and resource: http://MortgageModificationLoan.net/
|
Publish This Article
|
