Mar
28
2012

Impact on credit scores of missed payments, mortgage modification

Dear Experian,

I’m considering entering into a six month reduced payment plan with my mortgage lender. I understand this will have a negative impact on my credit. Will this have a worse impact than being 30 days late on my mortgage payment?

- STS

 

Dear STS,

Missing even one mortgage payment will affect your credit scores substantially. Multiple missed mortgage payments will seriously damage your credit history, which likely will be reflected in much lower credit scores. As a result, you may have difficulty obtaining new credit for a long period of time.

Mortgage modification programs were created to help people keep their homes when they no longer have the financial capability to pay their mortgage under their current agreement because of economic situations beyond their control. They are not intended to be a resource to reduce monthly mortgage payments if you are able financially able to make them.

For that reason, there are stringent qualification requirements for mortgage modification. One of those qualifications usually is that the individual’s mortgage payments are already delinquent.

If you are able to qualify for a reduced payment plan without becoming delinquent first, whether there will be an impact to your credit will depend on the modification program. Loan modification through some programs, particularly those endorsed by the U.S. government, such as the Home Affordable Modification Program (HAMP), may have no impact at all. Such programs include loan reporting requirements that result in the mortgage continuing to be reported as current and paid in full, if the requirements of the program are met by the homeowner.

Other programs may be referred to as “loan modification” but could hurt your credit scores because they are actually debt settlement. Before entering into a “loan modification” be certain to carefully review the contract terms and understand how your payment history will be reported.

Anything other than paid on time and in full will have a negative impact.

Thanks for asking.

- The “Ask Experian” team

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