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Marilyn Bowden wrote a useful article this week for Bankrate about mortgage loan modifications and credit scores. The most important point that the article makes is that, even if you pay your modified loan on time, your credit score takes a hit. Why? Because "the original contract, in which you promised to pay a certain amount, has been breached."
It's an important point that some borrowers miss. Your credit score gets whacked when you miss a few payments. But it also gets hit when you make lower, modified payments. And these hits keep coming as long as you're making the modified payments.
So if you think that your credit record begins to improve as soon as you start faithfully making those modified payments, you're wrong. Your credit record begins to improve only after you repay the modified loan, whether in a refinance or after a sale.
Rather than look to a loan mod, distressed borrowers should consider doing things to improve their credit which could possibly lead to lower rates and accomplish similar results with the effect of a better score rather than the "whacked" scores mentioned in this article.
Borrowers often turn to the modification process without considering how this will impact the rates they pay on their credit cards and the effect it will have on their ability to qualify for future loans.
A Credit Map from companies like mapyourcredit.com can be the first step in better understanding how to manage one's credit.