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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.

The Consequences

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.

Correcting inaccurate information on your credit report can help you immensely. The first step would be to check the expiration date of the records.

Then, you can create a dispute letter and send it to all three credit bureaus (Experian, TransUnion, and Equifax). Before you do so, you probably will need to take other steps to analyze your credit though as indicated in the following steps:

• Order your free credit reports from all three bureaus, of which you are entitled one copy per year. Print each out and review it carefully.
• If you spot any information while reviewing printouts of your credit report spot any inaccurate information that could have an effect on you. You should be particularly concerned if it causes a decline of your credit score.
• Documents you can use while you examine the accuracy of your credit report include as follows: Bankruptcy filing records (items marked “BK” for up to seven years), charge-off notes (notes indicating creditor has wrote off your debt as a loss), and collection records (usually remains on your record for up to 7 years after the last 180 day late payment).
• You can also take a look at closed accounts. These expire after 7 years as well. Closed positive accounts might remain on your record for longer.
• Foreclosed accounts, inquiries, judgments, late payments, repossessions, and tax liens, also affect your credit. You should take a look at any records concerning these very carefully.
• Once you have examined all your records carefully, this is when you would possibly file a dispute. You can submit your dispute to Equifax and TransUnion by mail, and you can do the same but only online instead of mail when using Experian.
• Once your dispute is submitted, then you can let the credit bureaus investigate. You can track these results, as all three financial bureaus have a responsibility to investigate claims made by you within 30 days.