The loan modification is a savior to the homeowner who has now found himself not to meet his mortgage payment. The loan modification means you get to stay in your house and service the mortgage arrears plus regain your financial stability.
However, what you need to remember is that a loan modification can consider your credit score. This is a priority for you if this process has recently happened. Here’s how you can start.
Understand the Credit Impact
If you modify your loan, it technically shows up on the radar of credit bureaus (although that does not say good or bad). However, this could end up with you still avoiding worse outcomes such as foreclosure but will give your credit report a “settlement” or restructured loan hit. It tells other lenders that you had an issue with the original terms of your loan. Continue reading “Your Credit Score: Knowing Where You Stand and How to Improve It”, Plus anything reported late before the modification are still on your credit. But that is ok because there are ways to slowly improve your credit.
1. Stay on Top of Your New Payments
After securing your loan modification, it is important to comply with the new payment schedule. Another tip to follow when rebuilding credit is paying on time every month. Set up automatic payments or reminders to ensure you never miss a due date. A single late payment could further damage your score, so it’s crucial to make this a priority.
2. Check Your Credit Report Regularly
After a loan modification, take the time to go over your credit report. Look for any errors, such as payments incorrectly marked as late. If you spot a mistake, dispute it with the credit bureau. Fixing these errors can improve your score and prevent additional harm.
3. Pay Down Other Debts
But if you do carry other debt, like credit card balances, paying those down will help boost your score. You can try not to use more than 30% of your available credit-that is, your utilization ratio. It shows lenders you manage your debt well. Beyond the benefits to credit, you also will be experiencing less headache in the wallet.
4. Create No New Debt
While it’s tempting to apply for a new credit card or borrow money, waiting is prudent. Ordinarily, racking up new debt muddies the waters in your finances and can damage your credit score. First, focus on paying off other loans that you carry now before you go searching for more.
5. Use Credit Wisely
If you do choose to employ credit, use it responsibly. For example, applying for a secured credit card will demand a deposit, so it can act almost as a threat to help you rebuild your credit without getting overly into debt. Use the card only for minimal purchases and pay the balance in full with each monthly cycle, which then reflects that you can correctly use credit over time to help your score recover.
6. Wait Patiently
Rebuilding credit after a loan modification is not an overnight process. It is something undertaken, day after day. At first, you may not notice it, but slowly with enough persistence, you will begin to notice changes occurring. It is always important to continue making timely payments and reduce your debt, and avoid taking any further credit till your score improves.