Credit Score
A credit score which is the numerical representative of the credit worthiness of a particular person which is derived from a statistical analysis of that person's credit files. A credit score is based primarily from credit bureau records and relevant credit information from other sources. A credit score is important in the sense that it is what is used by lenders like banks and credit card companies in evaluating the potential risk in lending money to a loan applicant. Such evaluation or specifically credit investigation is performed by financial institutions to mitigate the losses they suffer from bad debt. Credit scores in this sense are the primary determinants in deciding who qualifies for a loan, at what interest rate, and what credit limits. The use of credit scoring prior to granting credit is a must in the implementation of a trustworthy reliable system. Credit scoring is however, not limited only to banking institutions. Other organizations such as loss mitigation and loan modification companies, as well as mobile phone companies, insurance companies, employers, landlords, and government departments employ the same techniques.
Loan Modification
Loan modification is a systematic process in which the terms of a loan are modified outside of the original contract terms in order for fulfillment of the obligation be possible for the debtor. All terms of the loan modification should be agreed by both the debtor and the creditor, because in reality, loan modification benefits both: the debtor is able to fulfill and extinguish his obligation and the creditor gets paid. All loans can be modified or restructure in general. Loan modification may come in one or a combination but not limited to reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed; reduction in principal; reduction in late fees or other penalties; lengthening of the loan term; and capping the monthly payment to a percentage of household income. Available loan modification programs vary accordingly depending on the time the modification is to be applied, whether the borrower at that time is current, late, in default, in bankruptcy, or in foreclosure. There are also instances when the lender is the one who initiates the proposal of applying a loan modification solution. The lender usually does so in expectation that the borrower may be able to afford a lower payment, with the premise that a performing loan which provides current payments will be higher in value than a foreclosure sale which will provide future payments but obliges the lender to incur keeping costs while the mortgaged property is still unsold. The federal and state governments also implement certain schemes to urge borrowers to participate in loan modification programs through the provision of several incentives. It is however, often very hard to qualify on such schemes.
How Loan Modification Affects Credit Scores
The Obama Administrations Making Home Affordable Program has given new hope for homeowners who are starting to be engulfed by the fear of losing their homes at the brink of foreclosure. The global financial crisis currently corrupting the world economies have put homeowners in confusion, being dumbfounded and confused, most homeowners have no idea of what the best thing to do is. The existence of predatory lenders who require homeowners to be 3 months late on mortgage payments before considering any negotiation for a fair loan modification solution doesnt make their situation easier. Such act of delaying payments by three months or more causes much damage on ones credit score. Such damage will create much difficulties in the future for mortgage purchase or refinance approvals, rental applications, as well as limit available funds on current credit cards. Three months or more of delinquent payment is never a requirement for good loan modification. If your are one of the many unfortunate victims of these scammers act now and get a good loan modification company to help you fix your credit score. And please make sure the loan modification company you will choose has qualified attorneys in its arsenal.
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