Skip one mortgage payment and you will learn how quickly your good credit score can be ruined. Credit scores are used by lenders to measure how we handle debt. The FICO score range is from 300 to 850. A rivaling score called VantageScore was developed by the main credit reporting bureaus and it spans from 501 to 990.
Loan modifications, serious delinquencies with loans, missed mortgage payments, foreclosures, bankruptcies, and short sales each lower these credit scores. The mortgage is usually a large portion of an individual’s credit file so it bears more weight than other kinds of loans.
VantageScore and FICO studied and made that impact quantifiable.
An individual with an almost-perfect credit score who is 30 days late in making just one mortgage payment will feel the impact in the credit score. For everyone, selling the home for less than what is owed, called a short sale, is nearly as destructive as foreclosing.
When new loan terms are approved by a lender, the situation is referred to as a loan modification. The credit score will possibly drop only ten to 15 points because receiving assistance does not require going delinquent.
Some borrowers have been advised that they cannot receive assistance unless they have missed payments, leading to horror stories regarding modification. If borrowers are able to document a hardship
such as a job loss, they may be eligible for the Home Affordable Modification Program (HAMP).
This program is backed by the federal government but has drawbacks in the form of paperwork issues.
Nonprofits in the foreclosure prevention arena say that pursuing modification is worthwhile. Employers, landlords, credit card companies, and auto lenders look at credit. If an individual has poor credit due to foreclosure, expensive bad credit auto financing may be the only option and credit card interest rates could be extremely high.
