Financial Elite receives lots of emails from readers asking how to go about getting a mortgage modification, but this is a new one, "Does a mortgage loan modification hurt my credit score."
It's a question we've never really thought about before, but still it is a very good question. Since you are looking for a loan modification you are probably already having a problem making payments or about to start. Hence your credit is probably already suffering battle damage.
But like most troubled homeowners you are probably thinking that a loan modification is probably your best foreclosure rescue plan and the best way to put an end to your financial troubles. And like most you don't realize that getting a modification can actually hurt your credit.
Like us, CNNMoney reported today that they received a flood of emails from readers complaining about the impact of trial modifications on their credit reports.
As we stated earlier, several people applying for modifications are already delinquent or are heading in that direction. Most feel that a modification shouldn't hurt their credit score, but the reality is, it should. Getting a modification shows that you could not pay your obligation as agreed.
CNNMoney talked to Jason Axelrod, a homeowner, who learned the hard way, that loan modifications will hurt your credit score.
Jason did not fall behind on his mortgage payments, but it was getting harder for him to make ends meat, as his property taxes went up and he was forced to cut back on his overtime. Jason was told that his credit would not be damaged by having his payment reduced by $565 a month.
When he secured his payment reduction his credit score was 750. After eight months of trying to make his trial modification permanent, his score had dropped to 644.
"It's completely destroyed my credit." said Jason. "If I had known it would affect my score, I would have never entered the program."
Even though his credit score declined, Jason did find some light at the end of tunnel as JPMorgan Chase made his modification permanent.
It is under debate what banks are reporting to the credit bureaus. Many servicers are inconsistent with following the guidelines. They are not always reporting that their borrowers have a modification.
Servicers are required to report all information about their borrowers, that includes modification plans. Borrowers may see improvement in the scores as they get brought current and they start making payments again.
Chances are over the initial three month trial period you will improve your financial situation, but give some thought where you are exactly before accepting a modification plan.
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