Home Loans
Before Engaging a Credit Counseling Service Ask These Questions
(presented by www.refinance-refinance.net - mortgage lenders)
By Michael Saunders
Don’t be fooled by the come-ons. According to the Federal Trade Commission - you see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services.
They all make the same claims:
* Credit problems? No problem!
* We can erase your bad credit - 100% guaranteed.
* Create a new credit identity - legally.
* We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!
Do yourself a favor and save some money, too. Don’t believe these promises. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.
Make sure that you ask the right questions BEFORE you engage a credit counselor.
The fact that there are so many bad credit counseling companies out there shouldn’t make you avoid them entirely if you could benefit from legitimate help. If you’re already behind on your bills, unable to make minimum payments, borrowing from one card to pay another, or otherwise demonstrating signs of extreme financial distress, credit counseling might be preferable to bankruptcy.
Credit counseling is not a good option if you’re current on your bills and able to pay more than the minimums. Credit counseling itself won’t hurt your credit score, but the reactions of some of your lenders might. In short, you need to tread carefully. Here are some of the things you need to consider before signing up with a credit counselor:
1. Is it accredited? You’ll want a counselor affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. You can find affiliated agencies.
2. What do regulators say about it? At a minimum, make two calls: one to your local Better Business Bureau and one to your state attorney general’s office. Ask how many complaints have been made about the agency and see if any regulatory actions are pending against them.
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Did you know?
If you need to work on your credit report, the FTC warns that no one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete.
There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA).
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3. What does the agency say about its services? Avoid an outfit that says credit counseling will have no negative impact on your credit or one that promises to settle your debts for less than you owe without affecting your credit. Such unrealistic promises are a clear sign that you’re not dealing with a legitimate operator.
5. When and how much will creditors get paid? You know that missing or late payments can devastate your credit score. Make sure the counselor tells you, preferably in writing, how much of each monthly payment you make will go directly to your creditors and when the payments will arrive.
It’s possible that after all this investigation, you’ll discover that a credit counselor’s debt management plan won’t work. If your credit counselor crunches the numbers and discovers the agency can’t help you pay off your bills within five years, you’ll probably be told to “explore other legal options.” That’s code for: Talk to a bankruptcy attorney.
You might want to do that anyway, just to get more information about your options before you decide on a plan. Such a consultation is particularly important if your debts are overwhelming and you have equity in a home. States treat this equity differently, with some protecting all or most of it in bankruptcy court and others figuring it’s up for grabs. If you can’t protect your equity, it might be worth getting a home equity loan to pay off your debts, assuming you have enough equity available.
About The Author
Michael Saunders has an MBA from the Stanford Graduate School of Business. He edits a site on how to Fix Bad Credit and is president of Information Organizers, LLC.
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