If you’ve been unable to make your monthly mortgage payments on time, it has probably affected your credit report. While a loan modification can help you get a monthly mortgage payment you can manage, it will also show up on your credit report and may prevent you from getting credit in the near future.
A loan modification doesn’t affect your credit rating by itself. However, during the trial period, your bank may report that your payments were missed or late, because during this time, your payments are not going directly toward your mortgage, but instead are placed in a special account. Therefore, any late payments before the trial period and any payments reported as late during the trial period will be reflected on your credit report and they will impact your credit rating.
The good news is that once you are past the trial period and your loan modification has been approved, your current report will reflect that you are current on your mortgage, as long as you continue to make all payments on time. However, when you receive a loan modification, your bank may include a code when they report your payment history that reflects your status. That code can affect your credit score, or at the least, indicate that you underwent financial difficulties that make you a credit risk to lenders.
The first thing to know in improving your credit score and cleaning up your credit report is that you must make your payments on time. Then, your credit score will gradually increase as you do. However, if your credit score fell after being delinquent or after applying for a loan modification, it might be necessary for you to take other measures.
- If a bank reported your payments as late during a trial period, you can try to dispute it and request that it be removed. First, send a letter to the credit bureau, telling them what account you are disputing and why. Ask them to remove the delinquencies from your credit report because you were making payments on time, but they show up as late because of the way your bank applies trial period payments for loan modifications. The credit bureau will contact your bank to determine if the delinquencies should be removed from your credit report.
- If your bank has reported that you have a loan modification through a code (CN for government loan modifications and AC for other loan modifications), you can also try to get the code removed from your report by requesting that your bank remove the code from their reports. This may not work, but it is worth a try.
If you are unable to get any delinquencies or negative entries on your credit report removed, focus on improving your credit score by making your payments on time. Also, spend this time creating a budget that will help you to pay off your debts and build up your savings. Know that certain things can stay on your credit report for years. However, if you are focused and diligent, you can trust that you’ll be improving your credit score and that others who view your credit report will be able to see that you’ve taken steps toward a financially stable and secure future.
Anna Cuevas, ex-bank executive turned homeowner advocate known as “America’s Loan Modification Guru,” has empowered and guided thousands of Americans in keeping their homes from foreclosure through loan modification self-advocacy. A popular blogger (askaloanmodguru.com), Cuevas has been called a “superhero of the loan modification industry” and has been nominated for CNN’s Heroes. She is the #1 bestselling author of SAVE YOUR HOME Without Losing Your Mind or Money.
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