Credit counseling and the effect on your credit

Hi Christine,

I was researching using Credit Counseling Services (mine would be Take Charge America to be specific) and came across your blog from 2000.  I have to be honest, the blog scared me.  My husband I have great credit, both with scores in the mid to upper 700’s.  We purchased a home last year (a major fixer), and then accrued considerable credit card debt “fixing” the home.  Sadly, I lost my job last month, and we have now realized that within the time of a couple months, we will not be able to pay our credit card debt.  Our credit card company referred us to Take Charge America and it seemed like a good idea.  However, after reading your blog about CCCS I am very concerned about the effects to my credit and credit report.  I understand the blog is a little old-from 2000, but is that still accurate?  Please hep!

Here is the OLD BayHouse credit counseling page:  Consumer Credit Counseling – Debt Negotiators

I haven’t updated the BayHouse site in a long time, but most information is still accurate. While the “credit counseling” notation is no longer rated as derogatory for FICO scores, late payments and delinquent accounts of course ARE impacting negatively on your credit rating.

Your credit card company referred you to  Take Charge America because they are their COLLECTOR.  Credit counselors only charge about 10% of the money they collect for creditors because they don’t have to track you down and harass you into paying your debts – you VOLUNTEER.  All they need to do is accept your payments, take their cut and forward the rest to the bankers.

Here is a documentary about another “non profit” credit counseling nightmare:

Genus Credit Management and Capital One FRAUD and DECEPTION

However, I DO recommend that you set up an appointment with Take Charge America and get their recommendations.

They SHOULD explain your options to you, including bankruptcy and simply defaulting on your debts.

Based on the information I have, it is very likely that you could discharge your debts through bankruptcy and you really NEED to save every dollar to KEEP your home.

Or, you could simply stop making payments on your unsecured debts if you are judgment-proof, which you might be.  In that case, you may have to change your phone number because the creditors’ harassment calls have literally driven people to commit suicide — they have no mercy.  So if creditors have your home phone number, don’t make any more payments to them and use what little money you have to get a new UNLISTED phone number.

If credit is important to you, bankruptcy is the best choice and it will also stop collection efforts.

I had clients who qualified for the lowest fixed mortgage rates only two years after discharging their credit card debt and they bought a home.  FICO scores CAN be over 700 two years after the bankruptcy filing with some PLANNING.

It’s MOST important that you get all your OPTIONS and set up a couple of FREE consultations with bankruptcy attorneys.

Make an INFORMED decision.

You have NO moral or legal obligation to pay your debts to banks.   They are run by CRIMINALS and they deceive, defraud and even STEAL account holders’ money every chance they get.

One Response to “Credit counseling and the effect on your credit”

  1. This is the email from the reader and I’ll just post it here:

    Hi Christine,
    Thank you for your help. I appreciate it very very much. I was going to post this on your blog, but didn’t know if you would read it and no one else has commented on the post yet. The notation is no longer negative for FICO scores, but don’t creditors look at FICO scores AND credit reports? How are these remarks viewed these days? Negatively? Thanks again!!

    You can post here directly. Chances of me seeing and not forgetting about reader mail are actually much better for comments than with email as I have to approve all posts (so much spam) and it’s very easy for unanswered email to get lost as I get so much mail.

    Regarding the credit counseling notation:

    MOST creditors do NOT review the actual credit report, they only get the magic number, your credit score.

    The major exception is MORTGAGE lenders.

    While most mortgage lenders require minimum FICO scores, they ALSO require the the actual reports from all three credit bureaus in tri-merged format.

    FNMA also just added a new requirement that a new credit report must be obtained just before closing and mortgage applications have even been denied because of dispute notices by creditors (after consumers disputed accounts).

    It’s really crazy what they come up with.

    But it does make sense that lenders view credit counseling similar to a Ch. 13 bankruptcy (with a repayment plan — the debts were settled for less than the full amount).

    And even more important than the credit counseling notation is the fact that you have to CLOSE all revolving accounts.

    That in itself lowers your FICO credit scores dramatically. To qualify for most mortgages you NEED at least a couple revolving (credit / charge) accounts open for two years.

    The closed accounts can NOT be re-opened. So you have to open NEW accounts, the related credit inquiries will lower the scores and the account history will also be reduced, lowering your FICO scores even more.

    If you want a mortgage in the next 5 years, credit counseling causes huge problems.

    Add to that the likelihood of creditors reporting LATE payments while you are making your TIMELY payments under the plan and you can see how it’s a bad deal all the way around.

    If you discharge your debts through bankruptcy, you make NO payments and save a lot of cash AND you CAN try to keep your most valuable (oldest) accounts open.

    With some planning and possibly creditor negotiations, just one account reported as open with no late payments after the bankruptcy can increase your scores by over 50 points, even more if the account is a number of years old.

    The bankruptcy on your credit will impact on your FICO scores for 10 years — that’s the main disadvantage of bankruptcy. However, since FICO scores over 700 are easy to achieve as long as there are NO new late payments and collections, that’s generally not a problem. You’re unlikely to get scores over 750, but few people would need those scores and you’re very unlikely to get to a 750 FICO score after going into credit counseling for many years because all your accounts were closed.

    The major impact of the bankruptcy on the credit is that it’s difficult to get credit card limits over $5,000.

    Credit counseling is usually not an issue after the accounts are paid (3 years?) and another 2 years of re-established revolving credit, although the credit counseling notation can ALSO be reported up to 10 years (but doesn’t impact on FICO scores).

    There is NO date with the credit counseling notation on the credit report.

    I had a client who had to write a letter of explanation and provide documentation for credit counseling that had been completed many years ago.

    Mortgage underwriting guidelines change all the time and FICO scoring formulas change too.

    All things considered, if you want a mortgage within 5 years, you’re usually better off filing for bankruptcy and discharging your debts.

    Of course it also depends on the number of accounts and especially on the AMOUNT of the debt. If you owe less than $10k, bankruptcy USUALLY is not the way to go.

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