If you’re considering a loan modification but you’re worried about the effect it may have on your credit score, some good news may be on the horizon.

On July 15, Congresswoman Jackie Speier (D-CA12) introduced a bill in the House of Representatives that would make changes to the Fair Credit Reporting Act that would benefit consumers.  H.R. 5743 would:

… amend the Fair Credit Reporting Act to prohibit the furnishing of certain negative loan modification information to a consumer reporting agency and to prohibit such information from being used in computing a consumer’s credit score.

Right now, if you modify your mortgage to lower the monthly payments and make them more affordable, the loan issuer can report these new, lower payments to the credit reporting agencies as partial payments, meaning the total payment can be considered delinquent.

Delinquent payments can damage a consumer’s credit history and credit score.  As Representative Speier told the Chicago Tribune, “I am seeing people with sterling credit have their scores dinged as much as 100 points” under the current regulations regarding loan modifications.

Under the proposed amendment, on-time modified loan payments wouldn’t be considered delinquent and couldn’t be used by the credit bureaus to calculate the borrower’s credit score.  In short, if you modified your mortgage and maintained a timely payment schedule, it wouldn’t be held against your credit score.

The bill has five co-sponsors.  This legislation isn’t a sure bet to become law, though.  Not only is Congress bogged down by partisan politics in an election year, but the banking industry is fighting it already.  Joseph Pigg, Vice President and Senior Counsel of the American Bankers Assocation, is concerned that it will hamper banks’ ability to determine the credit risk of loan applicants.

“To deny information on modifications being used in credit scores only harms the ability of lenders to evaluate the creditworthiness of borrowers in the future, making it harder to determine a borrower’s ability to repay any future loan,” Pigg said.