Consumer Credit Counseling

What happens to your ability to purchase a house when you go to Consumer Credit Counseling? Well if you are like most people, you are under the impression that your credit is improving because you are making timely payments and the creditors have stopped calling. However this is one of the biggest mistakes that a person wanting to purchase a house can make, assume that the creditors are happy getting a portion of what is owed them and not all of what is owed them.

Here is what happens to your credit score when you negotiate with a Consumer Credit Counseling. If falls like a cliff diver in Acapulco! The counseling service takes the money you pay them each month and depending upon the service they either pay a portion to all of your creditors or they pay the debts off in the order that they negotiate on your behalf. Thus, the creditors are not getting the money you originally agreed to pay them and they report you as late on your credit report. Not only late once, but they start with the first 30 day late and then each month they continue to report you as 30 days late. In the industry we call this a rolling 30 day late, but what it does to your credit score is destroy it. Just this week I had a client call who thought his credit was fine only to find out that his credit scores were in the low 400’s. That is so far below the acceptable level to get a home loan that it will take him years to recover.

So what is the way to avoid this? Well first I have to question the wisdom of a person going to consumer credit counseling trying to buy a house. There is a good chance that this person has not learned how to save money and is living paycheck to paycheck. That person should not be buying a house. If you find yourself considering consumer credit counseling, first evaluate how you spend your money and what else you can do to make more money; get a second job, work overtime, what ever it takes to start making enough money to meet your needs. If you can’t find a solution that way, then call your creditors yourself. Get written agreements from them working out a payment plan that includes them not reporting you as late on the credit report. If that stills does not work, then consider filing Chapter 13 bankruptcy. A Chapter 13 will keep the creditors from reporting you as late. If you refuse to file Chapter 13, then go to consumer credit counseling, but know that you will put yourself in a position to not buy a house for at least 2 years after you finish paying off your creditors.

Thanks to Christopher Boedenfeld for the referral of Chris Stabile.

For more information on getting a “Mortgage Fitness Checkup” please contact me at chrisscheer@firstintegrity.com.