Homeowners falling behind on their mortgage payments are desperate for any relief that they can find. One of the most popular options is a mortgage modification that allows homeowners to negotiate the terms of their loan. Unfortunately, this incredible option also has drawbacks. Knowing how underwater mortgage solutions affect your credit score can help you make a decision that’s right for your case and prevent future headaches.
Not All Mortgage Modifications Are Equal
The good news is that not all mortgage modifications impact your credit score the same way! Furthermore, the current standing of your credit score may also affect your decision. If you’re struggling with mortgage payments, your credit might not already be in the best shape. If this is you, then your credit score is likely to be relatively unaffected by a mortgage modification. However, if your credit score is in great shape, you might want to reconsider a mortgage modification if your credit is important to you.
There are also various type of mortgage modifications. Through the government’s HAMP – Home Affordable Modification Program – homeowners will experience a drastic drop in payments. Whether or not this hurts your credit score depends on whether lenders report missed payments during the trial period as delinquent. Through HAMP, homeowners will experience a 3-month trial period to determine whether the program is right for them. However, some lenders might report you as current if you were up-to-date with payments before you began the program.
To protect your credit, it’s important to always make payments when you’re able to. Never intentionally miss a payment, especially since this shows on your credit history. While some people might prefer a foreclosure, it’s important to note that a foreclosure could be more damaging to your credit score than a loan modification. To protect your credit, it’s important to be in contact with your lenders. Aside from negotiating financial terms, consider negotiating the ways that they report your financial activity to the credit companies. If you “paid as agreed,” your score won’t take a beating.