Do Mortgage Modifications Reflect on Your Credit?

How mortgage modification affects your credit depends on your personal situation. Mortgage modification may kill two birds with one stone, saving your credit rating and your home. Alternatively, mortgage modification can require you to ruin your credit rating and may not not save your home from foreclosure.

Identification

Nothing negatively affects your credit rating unless a lender reports it to the credit reporting bureaus. However, mortgage modification often results in a negative notation on your credit history, because you do not pay in accordance with the original mortgage agreement. Also, some lenders only modify a loan after you have missed at least one payment. One missed payment can take over 110 points off your FICO credit rating, and a 90-day late payment could mean a loss of 135 points, according to Les Christie of CNN.

Making Home Affordable

You do not have to purposely miss payments to obtain a mortgage modification. The federal government has the Making Home Affordable program until at least 2013 for homeowners who cannot afford their home. While lenders report a Making Home Affordable mortgage modification as under a federal government loan program, participation in MHA does not damage your credit score as long as you enter the program current on payments and make on-time payments while in the program.

Benefits

Taking part in any mortgage modification may be the best thing for your credit rating in the long run. Defaulting on payments can make you too risky to lenders, and a record of non-payment stays on your credit report for seven years. Mortgage modification may also help you avoid foreclosure, which you may value more than your credit score. A lower monthly payment or interest rate, common concessions by a lender under mortgage modification, may free up income to help you make on-time payments on other accounts.

Tip

Ask the lender how it will report a mortgage modification and negotiate for the bank to report the account as "pays as agreed." Whatever the lender acquiesces to, get it in writing, because oral agreements are much more difficult to enforce. Watch out for fraudulent credit repair companies that claim they can save your credit score and your home. Some try to take your money and run, or get you to sign over the deed to your home, according to the Federal Deposit Insurance Co.

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Does Fast Cash Hurt Your Credit Score?

Fast cash loans -- commonly called payday loans -- allow borrowers to obtain funds quickly and usually without a credit check, so you only need a job to get a fast loan. This probably will not affect your credit score so long as you follow the rules set forth by the creditor. A payday loan more likely affects your finances, which may impact your ability to repay debts to other creditors that report to the credit bureaus.

Identification

Most administrators of payday loans do not perform credit checks or report to the major credit bureaus, because their customers tend to have bad credit and do not qualify for a loan from a major bank. Thus, the credit bureaus are unlikely to find out about a payday loan when you repay the lender according to the loan agreement.

Delinquency

Not repaying the fast cash loan or falling behind on the payment plan can cause the loan to get onto your credit report, because the payday loan company might sell the account to a debt collector. Debt collectors usually report delinquent accounts to the credit bureaus, and collection accounts are very damaging items to have on any report regardless of the size of the fast cash loan. Only when the payday loan has an original balance of less than $100 does the FICO credit scoring model ignore it.

Considerations

Payday loan companies usually charge extremely high interest rates, because they are meant for short-term loan emergencies to be repaid the next time you receive a paycheck. A single loan of $100, for instance, would cost $60 if it is rolled over to the next paycheck three times and a $15 origination fee is charged each time, according to the Federal Trade Commission. If you keep rolling over a large fast cash loan, it could trap you into a cycle in which you have only enough money each month to pay the interest. This could make paying other debts difficult and could cause defaults, which lower your credit score.

Tip

Explore all options before applying for a fast cash loan, suggests the Federal Trade Commission. Local banks and small loan companies usually offer much more favorable rates than payday loan centers. If you need a payday loan to pay off other creditors, ask about hardship policies the lender offers, such as deferred payments. Nonprofit credit counselors can work with creditors to reduce your monthly payment or provide advice on how to trim monthly expenses from your budget.

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Does a Bounced Check Affect Credit?

A bounced check is a check that your bank returns to the recipient when your account does not have enough funds to cover the amount for which it is written. Virtually all banks charge fees for bounced checks, and you may also face late fees and returned-check charges if you wrote the check to pay a bill. Bounced checks also can affect your credit rating and make it difficult to obtain loans and new bank accounts.

Credit Reports

Your credit reports from the Experian, Equifax and TransUnion reporting agencies contain information about credit-related accounts such as loans, general credit cards and retailer-specific accounts. The agencies do not report checking account activity, but they do put collection agency activity in your files. Some retailers and other companies hire debt collectors if you do not reimburse them for bounced checks. Collection agency entries are visible on your credit reports for seven years, and lenders may look unfavorably on such entries when evaluating your credit applications. Bankrate columnist Steve Bucci warns that court judgments are also added to your reports when collection agencies successfully sue you.

Traditional Credit Score

Your three-digit credit score is calculated based on information in your credit reports, so collection activity related to bounced checks reduces your credit score. The MyFICO scoring information website explains that 35 percent of the score is based on payment information, including collection agency accounts, so returned checks being pursued by debt collectors can hurt your score significantly.

Alternative Credit Score

Bounced checks directly affect your FICO Expansion Score, an alternate credit score created by Fair Isaac Corporation, developer of the original scoring model. The Expansion Score is an alternative score for people without a traditional credit rating, based on information from rent-to-own furniture and electronics stores and high-risk lenders such as payday loan companies, according to MSN Money writer Liz Pulliam Weston. This score also incorporates data from firms that track people who write returned checks. Normally, such firms create blacklists for bank use, which only affects your ability to get new checking accounts. The bounced checks hurt your ability to get credit accounts with lenders that use the Expansion Score.

Considerations

A bounced check may affect your credit in an indirect way if it was sent as payment for a loan or credit card and caused you to miss the deadline. The creditor usually imposes a late payment fee, and your account is marked delinquent and reported as such to the credit bureaus. This falls under the payment information section of your credit score, and it continues to hurt you every month you let the delinquency persist. The effect stops when you bring your account current, but that does not erase the prior delinquency.

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How Does a Collection Negatively Impact My Credit Score?

Credit card companies and businesses to whom you owe money usually do not pursue you forever. MSN Money website writer Liz Pulliam Weston explains that they try to collect for about six months. Most write off the owed balance if you make no payments in that time frame, but this does not remove your liability. The account typically gets sold to a debt collector, which compounds the damage to your credit score.

Effects

Your Experian, Equifax and TransUnion reports show past due and charged off accounts, which hurts your credit score. Most debt collectors add another entry when they purchase accounts, reflecting the collection status. The MyFICO credit score website states that charge-offs and collections are considered part of your overall payment history. Thirty-five percent of your total score is based on this category, so collections have a major negative impact.

Time Frame

Collection accounts do not impact your credit score forever, even if you never pay off the debt entirely. The Federal Trade Commission explains that the credit bureaus remove most negative items, including collections, after seven years. Credit scores are based on information in your reports, so erased items have no effect on your score. You may request the removal of an item by filing disputes with Experian, Equifax and TransUnion if a collection account still shows up after seven years from the original delinquency day. Check for outdated collections by ordering free credit reports through AnnualCreditReport.com, which provides them once per year.

Solution

Collection agencies have the ability to remove accounts from your credit reports, although they do not do this automatically, even if you pay. You can negotiate erasure as part of any settlement agreement on an old bill, and you can insist that the debt collector put that promise in writing, Bankrate columnist Steve Bucci advises. Do not agree to a "paid" or "settled" notation, because the collection account negatively impacts your credit score as long as it appears on your credit reports, regardless of its status.

Warning

Unscrupulous collection agencies sometimes threaten to add outdated debts to your credit reports after the legal reporting time has elapsed. These firms are known as "zombie" debt collectors, because they buy old bills that are no longer legally collectible and try to trick consumers into paying, Pulliam Weston warns. Every state puts a limit on collection times. Ignore threats from collectors who try to get money from you once the statute of limitations has passed. File disputes with the credit bureaus if the account ever shows up on your records.

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Why Is My FICO Score Impacted From a Signer Account?

The FICO score is a credit score calculated by using the Fair Isaac Corporation's scoring algorithm. The score is used by lenders as an important factor in determining eligibility for loans and loan terms, such as interest rates. Cosigning a loan refers to guaranteeing to repay a loan in the event that the primary borrower does not repay it, and it can affect your credit score.

Potential

When someone cosigns for an account, the cosigner is considered to be just as liable for the account as the person he is cosigning with. The account will be listed on both credit reports, and the creditor can come after the cosigner for repayment of the loan even if the borrower has not been pursued yet, according to the Federal Trade Commission.

Purpose

Lenders usually require a cosigner on an account when the primary borrower does not meet the lending criteria or does not have a sufficient credit history. For example, a teenager going to college may need a cosigner on a credit card if she has not had a credit card before or does not have a significant income. Borrowers may try to get someone to cosign their loan in order to receive more favorable terms, such as a lower interest rate, if her past credit is shaky. For example, if a person has a lower credit score but gets a person with stellar credit to cosign the loan, the lender is more likely to offer a lower interest rate.

Significance

The most obvious impact on a FICO score from cosigning a loan will be that the payment history of the loan will be added to the cosigner's payment history, which accounts for 35 percent of the loan. If the loan is paid on time and as agreed, the payment history can be beneficial because the cosigner will have another account reported as being in good standing. However, if the borrower makes late payments, the cosigner's credit history will suffer as well.

Considerations

The FICO score can be affected in several ways by cosigning for a loan, besides just your payment history. Thirty percent of the FICO score comes from the amount of money a person owes and what percentage of her available credit is being used. When someone cosigns for a loan, that amount of debt is added to her outstanding debt, which can bring down a FICO score because of the higher debt load. In addition, because of the higher debt, other lenders may limit how much additional money the person can borrow in her own name.

Warning

People should be very cautious about who they cosign for on a loan. When cosigning, the cosigner should ask the lender how much he could be liable for in the event of the borrower defaulting. Some lenders will allow a cosigner to only be liable for the principal owed when the borrower defaults, rather than also being liable for court costs, interest and finance charges. Cosigners should also get a copy of all the loan documents and a written agreement that the lender will alert the cosigner if the borrower ever misses a payment.

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Who Do I Contact if I Am a Victim of Identity Theft?

Identity theft is increasingly pervasive, and it can be devastating to victims. If someone gets hold of your Social Security number and uses it to open credit accounts in your name, or otherwise compromise your financial information and security, you need to take steps quickly by contacting credit bureaus, your lenders and the police department.

Credit Bureaus

Three credit bureaus collect and hold information on your financial life, and if you have been the victim of identity theft your first step should be to contact at least one of them, either Equifax, Experian or TransUnion. Ask the credit agency to place a fraud alert on your report. The bureau that you call is then obliged to call the other two bureaus who will place a similar alert on the files they hold. You should then order a free credit report from each of the agencies and review it carefully for fraudulent activity.

Lenders

If you do find accounts in your credit reports that have either been tampered with or opened fraudulently, your next step should be to call the companies these accounts are held with. Ask for their fraud or security department and outline your situation and ask for any fraud dispute forms the company may need you to fill in. Follow that call with a letter, and include the completed fraud dispute forms and copies of documents that support your claims. You should keep your original documents and copies of all correspondence relating to your identity theft case.

The FTC

Once you have taken these initial steps, contact the Federal Trade Commission and file a complaint. You can do this through the FTC's online complaint form or by calling the commission's ID Theft Hotline 1-877-438-4338. This step allows the FTC to better track identity thieves and share information with other government agencies that may be able to help.

Police

The final step should be to contact your local police department and ask it to open a file on your case. When you attend your local department to file the complaint, take a copy of your FTC complaint form and any supporting documents you have. Ask for a copy of the police report once it's completed, as this will help you dispute any fraudulent charges that result from the ID theft. If your local police department is reluctant to allow you to file a complaint, try contacting your state Attorney General's office.

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Requirements for Home Warranty Coverage

When you buy or own a home, you may need to establish a number of policies to protect the structure and items inside the house. One policy to consider as a homeowner is a home warranty. Learn about home warranty coverage, including the requirements for securing this type of policy.

What Is a Home Warranty?

A home warranty is a contract, similar to an agreement with an insurance agency, that covers certain items in the home. The home warranty, which usually stays in force for about a year, covers the costs of either a repair or replacement for appliances and systems in the home. That includes cooling and heating systems, as well as appliances, like stoves and refrigerators in the kitchen. The contract also pays for issues with electrical and plumbing systems in the home. The homeowner calls a service provider recommended by the warranty service to perform the repair or replacement, then the warranty service pays the claim.

New Homeowners

One of the most common scenarios where an individual seeks a home warranty is when he has just purchased and moved into a new (used) home. The new homebuyer doesn't know how the appliances and home systems function nor if they will continue to function in the future. The warranty provides the homebuyer with the peace of mind of knowing that he can get the items repaired or replaced if they malfunction.

Requirements

The main requirement for getting coverage with a home warranty is that the covered party owns a home in his name. If a prospective homebuyer wants a home warranty, she usually must ask her real estate agent to contact the warranty company to initiate the policy. An existing homeowner can establish the policy herself. Getting a policy is a simple matter of choosing the items to cover and purchasing the warranty --- similar to buying a warranty for a television. The homeowner must also agree to pay a deductible payment to the service provider.

Suggestions

If you are in the market to buy a new home, in some cases, the real estate agent will offer a home warranty policy as a freebie. The real estate agent pays for the warranty as a perk of closing the deal. If this is not offered, ask directly if you can receive this coverage as a part of the deal. Once the initial warranty expires, you can ask the warranty company to extend the coverage for another year or more.

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