Loan Modification Could Cause Credit Score Crash

Written by admin on December 7th, 2010

The Obama administration’s loan modification program for borrowers who are making their payments on time but are near default could see a reduction in their credit score by 100 points. This will make it harder for these consumers to not only obtain any other kind of loan but could also affects one’s ability to establish new employment, as credit is being used to judge consumers in just about every instance of life these days.

Housing and credit counselors strike up the unfair band to support consumers facing this new hurdle as for most, this drastic and sudden decrease in credit rating usually comes as a surprise. Yes, you are reading correctly. Consumer credit scores are being HURT by taking measures to do the right thing and abide by the man-

The Obama administration Making Home Affordable program takes consumers through an enrollment process where the borrower enters a trial period and makes at least three payments. Once the mortgage company notifies the three big credit bureaus some people are finding their credit scores taking a dive.

Delinquent borrowers do not have anything to worry about though. Your credit crashed when you fell behind on your loans. But for homeowners, who are having financial issues and still positively maintaining payments, a request for a loan modification is the credit bureaus first flag of trouble and those will result in a decline to your credit score.

Of course the credit rating industry defends the practice and here is how: People who sign up for loan modifications would not be asking for help unless they were having severe money problems. Plain and simple. Consumers just looking for a break, not falling behind, or just playing it safe…well shame on you for asking for help, right?! WRONG.

Yes, consumers going into the program are understood and assumed to be in a financial bind and therein other lenders should be aware of that in case said consumer tries to obtain a loan from them. W O W….

The Obama administration acknowledges that enrolling in the program can hurt credit scores but justifies the means by reverting back to the fact that foreclosure as an alternative brings far more serious financial consequences for borrowers and their families.

But wait; let us cover the really intriguing end of this financial path to purgatory. Those who enroll in the Obama program and are ruled ineligible take the hardest hit on their credit. These poor people in financial duress who have sought government assistance have now been declined and further diminished their credit score, simply by making an effort to do the right thing.

For the few and far who do get accepted into the Obama program and have their loans modified, their information will also be updated by the lenders to the credit bureau. The new status will stand moot on their credit report and a person could see their score increase eventually over time.

Now homeowners are taking a hit on their credit rating for trying to get help before they fall delinquent. Really? Is the credit game something you want to continue playing in? Do you really think it was designed for you to prosper over big banks profits?

Unfortunately big banks are making it harder and harder for Joe Public to have, and now, maintain a good credit rating. At your current rates and minimum monthlies the average debtor will make 100 payments to pay off a debt of 00 and wind up paying back 150 times more than what was actually charged in the first place.

This is insane. Your best bet is to gamble on a debt free future. Stop using credit if you do not have to. Use credit for necessities as needed, not for wants or whines. You need a home but you do not need a pocket full of plastic. Start small; consolidate your retail accounts and gas cards. Close them in a consolidation program, get a lower monthly payment with a lower interest rate and start paying back the debt you own, not the debt they have sown. Chop away at your credit debt with a nonprofit consolidation program and start your path to financial freedom.

Speak to a certified credit counselor for a free debt consultation. Our nonprofit organization provides a confidential financial analysis covering your debt to income ratio, assets and liabilities, and a consolidation quote to see how we can help you be debt free. For more information on the Making Home Affordable program or about non profit budget counseling please call 800-905-1563 or visit our website

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