Guide to Payment Modifications
We are living in unpredictable times. We just started heading out of the financial crisis that began in 2008. And suddenly, we were hit with a once-in-a-century event – the coronavirus pandemic. It’s now clear that anyone can fall prey to financial instability. Yet there are things like payment modifications that can help ease your situation.
But, decisions like payment modification are not to be made lightly. You need to be informed well and seek advice from credit experts. Without further ado, let’s dive into what payment modification is.
What are Payment Modifications
A modification means you have reached an agreement with your creditor to change the original terms of your mortgage. If you are struggling to pay a debt, you basically ask creditors for payment modification. This change can refer to the interest rate, length of the loan, payment amount, etc. There are several possible benefits of payment modifications:
● Lowering your monthly payment to a more affordable sum.
● Resolving your delinquency status with your lending company.
● Permanently changing the original terms of the loan.
● Seeing less damage to your credit score than a foreclosure.
So, it doesn’t hurt to ask your credit card company or other creditors if they offer modification options.
Because as we’ve said, we are all susceptible to hard times. Just some of the things that can lead to someone opting for modification are:
● Being ineligible for refinancing.
● Falling behind payments or being likely to fall behind soon.
● Coming across a long-term hardship.
The Effect on Your Credit Report
Credit reports reflect loan modifications. They can lead to drops in credit scores. Stiil, they have a far less negative impact than bankruptcies, foreclosures, and late payments. The reality is that many applying for loan modification are already in unfavorable financial positions. So there is a high probability that those seeking modifications have poor scores.
Not all lenders report loan modifications to credit bureaus the same way. We should underline that you should check what rules Equifax, Experian, and TransUnion have in place. And even more helpful, you should go over the subject with a professional credit analyst.
Reporting to Bureaus: Different Approaches
For starters, some lenders won’t even consider giving clients loan modification. They first ask for solid proof that they are in a financial conundrum.
A lot of lenders make decisions based on if you are current or already delinquent. But in both cases, you have to be making payments required by the agreement:
● Your account is current and you came to an agreement to skip a payment, make a partial one, or a third option. The creditor has to report to credit reporting firms that you are current on your loan or account.
● You are delinquent and you make an agreement. If you then bring your account current, the creditor has to report that you are current on the account.
Creditors will frequently report modifications to bureaus as forms of changes to the original loan terms or as forms of settlements. If your lender does that, and your loan modification shows up on your report as not fulfilling the original loan terms, your credit score will suffer. An upside to this is that this is a short-term effect when compared to missed payments and foreclosure.
Other lenders will not report the change as a settlement. Then your score may not change and even improve – in case your monthly payment decreases.
Your best bet is to ask your lender how they report loan modifications. Some may agree not to report it, especially if you have a healthy credit history.
How Often Should You Check Credit Reports?
After agreeing with the lender, you should check your credit reports to ensure that the agreement has been mirrored in the report. If the deal was to pause one month’s payment, then the lender should not report it as a missed or delinquent payment.
You won’t go wrong checking your reports after a month or two to see if the reports are correct. That especially goes if you plan to take out a credit or are looking for a new job since your future employer can peek into your credit reports and score.
And finally, credit experts at White, Jacobs and Associates can navigate you through the muddy waters of payment modifications and the different approaches lenders can have. Stop being rightfully confused and book your free consultation today.