Under the government's loan modification program, before a borrower's loan is permanently changed, they are given a trial modification. This can last for several months before a decision is made whether or not to permanently alter the loan.
What borrowers need to understand is the effect this trial period will have on their credit score. According to the Treasury Department, even if you have been current on all your loan payments, your FICO score will drop about 100 points. And if you had late or missed payments before the trial period, your score will drop even more. The longer you are in this trial period, the greater the impact will be on your score.
Once the modification is approved, the borrower's mortgage credit status will be listed as current which should improve the score. Even so, the delinquency remains on credit reports for up to seven years and can make getting credit for something else like a car difficult and expensive.