Can HAMP Ruin Your Credit Score?

Identification

HAMP will damage your credit if you started missing payments before entering the program. This is because modified payments will mean you are not current on your installment plan. If you were current before your loan modification, lenders will report HAMP-modified loans as on time and current. Either way, the account will have "modified by federal government plan" noted on it.

Effects

If you were current on your account before entering HAMP, you will see the biggest dip in your score. Already delinquent mortgages tend to have lower drops, because late payments probably mean you have less than excellent credit. HAMP modification, however, should not lower your score by more than 100 points. This will keep you in the "good" range if you have a score above 700. What's more, lenders only report your account as delinquent during the trial period. Make your payments during the three-month trial period and lenders will adjust your account when it reports to credit bureaus for the rest of the life of the loan.

Considerations

It might seem unfair that a program intended to help mortgage holders experiencing financial hardship damages their future ability to gain credit. But that's because it is a program for people who cannot fulfill a commitment. Keeping a mortgage will probably benefit the consumer more than constant late payments and possible foreclosure.

Tip

HAMP participants can soften the blow from loan modification by improving other areas of their credit report. If your loan modification includes lower monthly payments, use that to pay off any other debts with a higher interest rate. Do not take on new accounts just to add positive items to your report -- new inquiries ding your score and new credit could increase your debt burden if you overspend.