If your credit is a mess, you’ve probably been thinking about consulting with a credit counselor. However, you may have some fears about what will happen after you seek help. The Cheat Sheet is here to allay your fears and give you the inside scoop on what you should know about working with a credit counselor.
1. Your credit score will not be ruined
If you’ve been afraid to get credit counseling because you’ve heard it will wreck your credit, you can breathe easy. This long-held myth is simply not true. Credit counseling will not ruin your credit. You should know, however, that the steps you take after meeting with a credit counselor could impact your credit. For example, if you decide after going over all of your options with a counselor that you want to settle your debt for less than what you owe, you will receive a negative mark on your credit report and your score will drop. For example, if you have a credit score of 780, you could lose as many as 160 points from your score following debt settlement.
2. Credit counseling is not the same as credit repair
Some companies that specialize in credit repair will try to pass themselves off as credit counselors. Don’t buy what they’re selling. Although a credit repair company might be able to help you find and correct mistakes on your credit report, which can improve your score, this should not be confused with the services offered by a certified credit counselor. Credit counselors go through all of your assets and liabilities and help you work out a plan to manage your debt, while a credit repair service will primarily be concerned with finding and correcting errors on your credit report — often for a hefty fee. Know that paying for credit repair is a waste of your hard-earned cash. You can locate and correct errors on your own for free. Start by ordering a free copy of your credit report from annualcreditreport.com.
3. Credit counseling should not be expensive
Credit counseling should be provided to you at low or no cost. If you are asked to pay hundreds of dollars in upfront fees, it’s likely you’ve stumbled across a scam. Note that the fee for credit counseling is not the same as what you pay for a debt management plan. The fee for a debt management plan is what you pay each month after your creditors have been contacted and the credit counselor has arranged for one low monthly payment for the debts you are having difficulty handling.
4. Pay attention to agency qualifications
Don’t blindly seek help from just anyone. Make sure the organization is a registered nonprofit and is accredited or certified by an outside organization, such as Council on Accreditation or International Organization for Standardization. Also make sure the counselors who work for the organization are certified. You can’t trust just anyone with your financial future. Take the time to do the proper research.
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