A loan modification is one of the best options to prevent foreclosure and keep your home-but how will the loan modification affect your credit?  Well, that depends on a couple of things-were you behind on payments prior to the loan modification?  Did the lender agree to reduce your principle balance as part of the loan modification?  It’s not really the loan modification itself that would cause a negative report on your credit, a negative rating would be triggered by late or missed payments and not adhering to the terms of your original loan agreement.

Some loan modifications include a reduction in principle whereby the lender actually “forgives” part of the money you owe them.  In those cases, the bank may report the account as “paid for less than owed”, which is not a good rating.  In the majority of cases, there have been late payments reported already-prior to any loan modification agreement.  In those instances, a loan modification will only be a benefit to your credit standing as now you will be brought current and the loan should be rated as such.

Since loan modification is a relatively new option for homeowners and lenders, there is no “set” procedure or precedence in place for how a loan modification is handled with the credit agencies.  A good idea is to include in your loan modification negotiation an agreement with your lender that will protect your credit rating.  When working with your bank to find a workable loan modification, ask them to agree to update your loan as “current” with the credit bureaus when you sign the new loan modification paperwork.  They are under no obligation to do it, but it certainly won’t hurt to ask them.

Getting back on track with a loan modification is the first step to re-establishing your good credit rating.  A loan modification can help you avoid foreclosure and get a fresh start with your lender.  Tens of thousands of homeowners have successfully modified their home loans.  YOU CAN TOO!  You just need some upfront knowledge and guidance to give you the fighting chance you deserve to save your home