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Loan Modification Hurts Your Credit Score

By Ruth Racey
Published: Tuesday, January 12th, 2010

One of the most popular debt relief schemes right now, especially in paying mortgages, is loan modification. This scheme is timely introduced, especially in these times of economic crisis wherein it is much harder for a lot of consumers to pay for their respective debts. In this case, loan modification has actually benefited a lot of consumers, enabling them to pat for their respective loans easily.

Remember that one of the main causes of the global economic crisis is the credit crunch. In this case, most consumers where actually not bale to pay for their debts due to the very high interest rates that where related to subprime mortgages. Therefore, this truly meant relief for many debt ridden consumers in the country.

Loan modification is actually all about adjusting the interest rates of your loan. It is just like a credit discount or credit promos that most credit agencies offers to consumers. In this case, Loan modification is actually all about a temporary interest rate reduction, for you to pay your mortgages easily. This is the reason why there are so many consumers who have availed this scheme. The sad thing is; it actually causes you to have a lower credit score.

It is still a puzzle for many consumers why having a loan modification actually hurt your credit score. This is because of the fact that being able to be under this scheme actually does not fundamentally changes your debt. One thing is that your principal remains all the same. The second thing is, even with loan modification, the interest arte of your debt is not permanently changed, but is only temporarily adjusted. This is why a lot of consumers clamour for credit agencies not to let your credit score be affected by loan modification.

Despite such clamours, however, credit agencies actually continue to let loan modification do harm to your credit score. Remember that one of the main factors that determines your credit score is actually your credit worthiness. When talking about credit worthiness, it is simply all about your ability to pay, especially the risks involved in you not being able to pay for your debt accordingly. This is because credit agencies are very likely to face losses at this point. And sadly, loan modification is still seen as a risk. Therefore, expect loan modification to do harm to your credit scores for a time, and avoid it when you need high scores.

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