Does Mortgage Aid Hurt Your Credit Score?


Homeowners seeking mortgage help through loan modification programs such as HAMP and HAFA, may face another issue—lower credit scores.

Loan Modification and Credit Scores

Homeowners on the verge of default have several loan modification programs now available to them, thanks to the federal government’s mortgage bailout plan. These programs are designed to help homeowners in distress stay in their homes by restructuring or refinancing their mortgages. As of February 2010, there were over one million homeowners in the U.S. seeking assistance through a loan modification program. But many are finding this silver lining has a dark side as well: lower credit scores.

Homeowners who are still making their payments on time but are on the brink of default and possibly foreclosure can take advantage of the Making Home Affordable program. The program offers several options to distressed homeowners, including refinancing and modifying mortgage loans. Qualified homeowners enter these programs on a trial basis, with the requirement to make at least three payments.

Notification to the Credit Bureaus

When borrowers sign up for a loan modification program, their mortgage company notifies the three big credit bureaus: Experian, Equifax and TransUnion. This may be the first sign of distress that the credit bureaus have received regarding the homeowner, causing the bureaus to adjust the borrower’s credit score. Those affected have seen their credit scores drop by as much as 100 points, which could potentially affect the ability to secure a loan in the future or even apply for a job.


However, this is still better than a foreclosure situation, which can drop a homeowner’s credit score by 150 points. And, once out of the loan modification program’s trial period and accepted into the program—resulting in permanently-modified loans—lenders update the credit bureaus and, over time, homeowners can see their score increase.


Find out if loan modification is right for you and whether you are eligible for a loan modification program.

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Source: Associated Press, U.S. Treasury Department,,
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