How will a home loan modification affect your credit?

One of my past clients recently contacted me and is thinking of contacting their lender for a streamline refinance or a loan modification. Before they contacted the lender they reached out to me to answer the question “Will a loan modification lower my credit score?”

To get an answer to the brief question I contacted Brooke Peros, a Credit Coach here in Sonoma County. I didn’t get a brief answer however. Here is how our conversation went:

I have been researching about how a loan modification will affect a credit score.  There is no simple black and white answer.   If there are already late payments then of course it will lower the credit score as with any account.  If there are no late payments then it will depend on how the lender reports the loan after the modification.   At the end of the day when the loan is modified IF it is reported as a settlement then it will drop the credit rating.  You would see something like, “account settled for less than legal amount owed.”   The good news is that not all the lenders do this.

The next part of it is the trial period of the new payment.  Sometimes the lender will report late payments during this time because of the new payment being less than the original amount.  This shouldn’t happen.  The government has set up guidelines that it should be reported as “a modified payment” and not late.  This could also impact the score negatively but not as severely as a late payment.

I hope this has added some clarity in a very gray topic.  I included a link that I think sums it up fairly well….

Thank you Brooke for your research and in sights.  If you need to contact Brooke she gets her email at and her website is Her specialty is credit repair. I have worked with her to help folks avoid foreclosure, get loan modifications and/or consider short sales of their homes.

Beth's Answer
  1. Here’s some more info on credit:
    Your credit score is an indication of how likely you are to default on a debt obligation in the next 30 days.

    The credit score is made up of many different components. All a credit score is, is an indicator or rather a predictor of how likely you are to default on a monthly debt obligation in the next 30 days. The higher the credit score the less likely you are to not make a debt payment, conversely the lower the credit score, the more likely you are to default on a debt obligation, and as result, the higher the risk, the creditor takes in providing you credit. Credit scores in the eyes of a creditor are nothing more than a measure of risk. It’s a question of how much risk the creditor willing to take in helping you secure mortgage or get a credit card etc.

  2. Hi Beth,
    Can you direct me to a responsible, trustworthy and experienced person to help me start and complete a Home Modification? I am not late or behind on my Mortgage and live in Sebastopol.
    Much thanks,

  3. OK I am suppose to be meeting a person about getting money for help to pay my 1st or 2nd mortgage due to a disaster zone. They say I can get up to 25000 to help me, and that say my 2nd lender HELOC may be willing to write off my HELOC in total. I really would hate this because it is that HELOC that has helped me throught some though times, and if they did knock it off I doubt they would just up and give me another. I have never been late on anything but due to this disaster and having to fix my home to where it was livable with no rats, or raccon enter zones it was a must. My insurance helped me a lot but that went quick. I look back and wonder where did all that money go!!! Plus I had a car wreck!! just alot of money went out and not a whole lot to show for it. One guy still has 2500 and wont do the work he promised, one doctor kept 3000 that the insurance wrote to him per my direction (I was stubid), people just want stuff for free every where you look. Anyways just wondering if there would be any deal I could make with the bank to keep that 20000 HELOC open . Thanks
    Oh and how will this , since it is a disater situation affect my credit?

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