Archive for February, 2010
When trying to clean up your credit-which sometimes seems such an impossible feat-you have a lot to consider. One of the major concerns regarding this is that pertaining to FICO scores and how loan modification can affect it.
People who have outstanding loans are encouraged to be careful about the decisions they make regarding this matter. Part of this is in knowing what a loan modification is in the first place.
A Simple Definition
A loan modification is the alteration of any financial contract. Usually this would be in the form of reducing interest rates or in the forgiveness (or partial forgiveness) of a loan. Sometimes it could be an extension of the loan’s maturity date.
This is a very complex matter-that of loan modification. It depends highly upon what parts of the loan are being modified or how it is recorded.
Some schools of thought suggest that since a loan modification is listed as a “Partial Payment Plan” on your financial records it would be better than perhaps not paying at all. However, this actually does lower your FICO score.
Avocation is being made by consumers to determine whether this is fair or not-the lowering of a credit score even if a payment is not missed after loan modification. If it still will affect you negatively why bother?
Therefore, although it might be a better solution than continuing to be delinquent on your loans it could still cost you. It often is not considered to be anything more than just a temporary solution to solving credit and debt problems.
If you are not sure whether this solution would be better for you than a charge-off or type of debt forgiveness, ask a financial counselor. A budget or credit counseling may be your best source for this type of information.
Online there was just recently a report about credit reports that I found very interesting. It explains false beliefs about credit reports of which most people are unaware.
This will help you determine whether or not you are making wise credit choices. This is how your future will be determined as you make an attempt to better your situation.
The Truth Revealed
One of the most obvious myths that people actually believe is the one of which they think they can instantly start with a clean slate once bills have been caught up. Paying your past debts is great for the conscience but it does not necessarily mean that it will wipe out your entire history.
You may still suffer some consequences for certain mistakes and/or unfortunate financial circumstances. This then probably leads to the next point, which has to deal with fear of debt management programs.
There is a wild myth out there that suggests that credit counseling affects a person’s credit score. However, if there are settlements made while the credit counselor negotiates with lenders and creditors that could affect you negatively.
This generally is the case whenever you have an account that is delinquent. However, if things are current it is not going to be counted against you if you are using credit counseling.
Another mistake in thinking that people often make is thinking that canceling credit cards always will boost the credit score. Although it is not wise to have too many of them that you cannot pay off, it helps to have at least two or three on your account.
Usually paying bills on time and not overextending yourself is more important than having a substantial credit card debt. However, you should still be careful about what actions you take.
For one, it will not look very good on your record if you for instance open up several credit cards during a holiday season. Too many inquiries at one time can really hurt your score.