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Credit counseling and its effects
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It is so very easy to get credit and misuse it to the extent that you need a good credit counselor to get you back of track. Many people have multiple income streams but even then can't seem to get out of debt trap towards a debt free living. The individual needs to be very motivated and needs to have a plan in place and execute it appropriately to become debt free. Only a good credit counselor is trained to understand you current debt situation and recommend advise and bright ideas to help you resolve or eliminate debt. A good credit counselor will always be in good standing with the BBB. Some credit counselors have credit counseling programs whereas others will have a debt worksheet which will help you achieve your goals.
VantageScore
I recently saw on CNBC that a new credit bureau called VantageScore is trying to update and levelize the way that credit scores are tabulated for creditors. Their "leveled credit characteristics" across the three credit agencies, Equifax, Experian and TransUnion will try to ensure that any credit score differences for the same consumer are attributable to what is in each agency's database, not the... Read credit counseling article
Credit counseling and its effects
All to often credit is fun, easy to get and even easier to use. Many people find that even though they have an excellent income, that they can not keep up with their current debt load and even if they are managing to make their monthly payments they are not getting ahead. Is there a solution to this situation without having to claim bankruptcy or adversely effecting your credit score?Credit counseling may very well be the answer for this type of situation. Credit counseling is designed to help correct your problem without impacting your credit score and may actually help improve your credit score. Credit counseling works by ensuring that all of your creditors are getting paid on time, eliminates the trap of revolving credit and helps you to learn to over come your credit problems.
Upon entering into a credit-counseling program you will be asked for financial details and to surrender most of your credit cards. Almost all programs acknowledge that you need a credit card or two for business or travel and will not try to restrict your ability to work and live in a reasonable fashion. Once your situation is assessed a plan will be made so that your will be debt free in three or four years and you will be offered the help you need to keep out of the situation that you are currently in.
While your credit score will not be effected an entry will be placed on your file. The entry on your file will generally say "DMP" or "credit counseling". This entry is put there to you from obtaining additional credit cards. Once you have completed your credit counseling this entry is generally removed or updated to reflect that you have finished the program.
One thing that will effect your credit rating is the promptness of your credit-counseling agency. When you are in a credit-counseling program you will give the agency a monthly check that they will use to pay your creditors. If the agency does not pay your creditors on time or in full your credit score will be impacted. Be sure to check out the history of your credit-counseling agency to avoid this.
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Avoid credit counseling sharks
How to avoid credit counseling sharksPosted: Tuesday, October 25 at 03:23 am CT by Bob Sullivan Sharks smell blood, vultures sense death, and scam artists know when consumers are drowning in debt. As we discussed last week, the credit counseling business is awash in shady offers and less-than-honest firms that actually make matters worse for debtors. And now, thanks to America's new bankruptcy law, more people than ever will be in the market for credit counseling.
Here's how to avoid the sharks.
First thing to know: There is a big difference between the 90-minute compulsory credit counseling sessions that bankruptcy candidates must now attend, thanks to federal law, and a full-fledged debt management plan offered by credit counselors and credit repair firms, says Liz Pulliam Weston, author of Your Credit Score and Deal With Your Debt.
The new congressionally mandated, bankruptcy-related classes are much more like "traffic school -- you are in and you are out," Weston said. The classes can even be taken over the Internet. Don't expect a whole lot of wisdom in these sessions. Hopefully, they won't last long enough to do much harm.
It's also important to know that most sessions with most credit counseling and credit repair firms you see advertising their services won't satisfy the bankruptcy requirement. The only agencies that will are listed at the U.S. Trustee Program Web site (click here). These agencies have been vetted by the Justice Department, and hopefully will be scam-free.
There's scams, and then there's bad advice
That's not to say these firms will do an equally good job of dispensing advice to those who are laden with medical bills and credit card debt. That's why it's important to ask the same questions whether you are filing for bankruptcy or just looking for help getting your monthly bills under control.
Ask how the company makes its money; ask how often clients end up eventually filing for bankruptcy; ask for a list of fees in writing. Ask employees about their backgrounds. If any of those questions make them squirm, run away. Many credit counseling mills hire just about anyone off the street. The counselor is probably no better at budgeting than you.
Other firms are compensated heavily by the credit industry, so they will be more interested in getting your money than in giving you good advice.
However silly this sounds, you'll have to make sure your bills will actually be paid. The dirtiest counseling firms take consumers' money under confusing terms, and keep most of it. Little, if any, goes to pay lenders. Later, consumers are shocked to find their debts have only increased. Get in writing a list of bills that will be paid, and don't assume they have been. Call your creditor on your own and make sure the money's gotten there.
Other signs you are not dealing with a reputable firm: Aggressive promises indicating you can get out of your debt without filing bankruptcy. Many creditors will lower interest rates as part of a negotiation, but it's rare they will forgive debt unless a judge tells them to.
Don't trust agencies that suggest you simply stop paying your lenders. The repairman is probably suggesting you attempt to create a brand-new credit file at the nation's credit agencies by obtaining a new Social Security Number or Employee Identification Number from the IRS. That's a bad idea that might land you in jail.
Will end up on your credit report
Another tricky tactic used by less-than-savory credit counselors: They'll dispute every item on your credit report, a process known as "reinvestigation" in the credit business. The hope is that some lendors will miss the paperwork, and you'll sneak out from under a few bills. It rarely works, and it can be illegal.
There are genuinely helpful credit counseling agencies out there. The industry's association group, the National Foundation for Credit Counseling, is hard at work trying to repair the industry's image.
But consumers should know that even the most-well intentioned repayment plans instituted by the most honest credit counseling firm will have consequences. A note is entered on the consumer's credit report indicating they are in credit counseling, according to Weston. While some credit scoring formulas ignore that note, others do not, and penalize the consumer. Some lenders that pull the full credit report will treat the notation as if the consumer is in Chapter 13 bankruptcy.
One expert's advice: Don't go
That's why the decision to undertake credit counseling should be made very thoughtfully. And in fact, Elizabeth Warren, author of The Two-Income Trap, thinks the decision shouldn't be made at all.
Her advice is simple: "Don't go."
"He who pays the piper calls the tune. When the credit card companies are paying for your credit counseling, they are the ones who will be helped," she said. Counselors will often give bad advice, such as suggesting a second mortgage, telling consumers to sell property that would be exempt, or to borrow from your family members, she said.
No matter how bad things are, do-it-yourself is the best policy, she said. Her book All Your Worth includes a chapter called "Financial CPR" in which she advises consumers to assess their situations, come up with their own repayment plans, and negotiate with creditors on their own.
"No one has the incentive to get it right the way you do," she said. "There is no advice you can give someone (to avoid bad counseling). The bad guys don't wear black hats."
If you have to go to credit counseling in order to file bankruptcy, attend the class but be sure to take legal advice only from your lawyer, who will have your interests in mind, she said.
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