Credit counseling for people who are paying their bills but want to improve their credit rating

Factual Questions
1

Over the past few years, “Credit Counseling” services have been big advertisers on the radio in the US. According to Wikipedia, “Credit counseling is usually less typified by functions of credit education or the psychology of spending habits, rather credit counseling establishes a planned method of debt relief, typically through a Debt Management Plan.”, which seems to match with what the ads tout, which is namely a counselor or group that will “negotiate” with creditors to reduce interest rates and reduce or eliminate late or other fees, and consolidate the person’s debt into one manageable monthly payment. It appears from some sources that creditors actually fund or kickback to these groups to some extent.

Is there credit counseling easily available to someone who has had a problem with credit in the past, has a trashed/very low credit rating, but is currently paying all their bills? That is, they aren’t worried that they can’t meet minimum payments (which, if missed, could trigger late fees and increased interest rates), but want to:

  1. Accelerate the rate at which their credit score improves, or reach a specific target credit score in a certain specified time. E.g. “Now, Joe Consumer, I’ve reviewed your latest credit report, and, assuming that you don’t fall behind on any payments again, if we want to get it up another hundred points by next December like you wanted to, you will need to take on a larger debt to prove your ability to handle it. A car loan might be a good idea and something you probably qualify for now - were you hoping to buy soon? Also, you seem to be taking a little hit by charging 90% of your credit card limit every month, even though you pay it back in full every month. You should reduce this to not more than 50% every month, regardless of how much of the balance you pay off.”. That is, they are being counseled on what types of debts to take on, when to take them on, and how to structure their repayment so as to maximize their credit score.

  2. Get advice on how to prevent credit problems in the future. E.g. things like how to evaluate a credit opportunity and shop around for better rates, how to get a better job or negotiate successfully for a raise, how to negotiate with loan officers to reduce rates from the get-go (before the loan is signed, NOT after Joe Consumer finds the payments overwhelming), how to not be a fraud victim, and avoiding impulse purchases.

Is such counseling available? I’d think that at least part of #2 might be served with a traditional psychological therapist, but that doesn’t seem like it would cover everything.

2

First off, be VERY SELECTIVE when choosing a credit counseling firm.

We had a bunch of stuff dumped on us at once, and the bills were too much. The credit card people literally hound you to death, and they also keep increasing your interest rate when you fall behind in the payments. I think our interest rate had hit 30%!

A reputable credit counseling firm will review all your income, and all your bills, and figure out a budget. It will be austere, but livable. And a certain amount will be allocated to the credit card companies. The counselors will contact the credit cards and tell them: this is the monthly amount which will be paid, and this is the interest you will charge.

The credit cards are DELIGHTED that the debt isn’t being completely abandoned. They will accept the negotiated terms. In our case, the monthly payment was $275 for each card (we had two monsters), and the interest rate came down to 9%.

The account is closed, so you cannot charge anything during the payoff period.

You set up an automatic deposit to the counseling firm, every month. They take a VERY minimal handling fee, and the rest goes to the payment plan. We had two monstrous credit card bills, and they each received $275 a month. The calls STOP. The harassment ceases. Peace reigns.

It will take YEARS. But you are paying back the debt that you owe. Now, I’ve been told by banks that using a credit counseling firm actually counts against you when figuring your score. The bank people said that YOU, by yourself, can contact the credit card people and negotiate the lower payment, the lower interest rate, and freeze the account. Let me tell you, though, by the time we signed up with the credit counseling firm, we were EXHAUSTED. The firm also offers “classes” on managing your money, and you can receive a certificate of completion, which can be added to your credit report. It doesn’t directly affect your score, but lenders read it and smile favorably upon you.

HERE’S THE GLITCH: There are “bogus” credit counseling firms. These are the guys who advertise on TV. Their pitch sounds almost identical to the reputable firms. Their method, though, is that you arrange the monthly automatic debit to them. They charge a handling fee, quite a bit more than the “good guys.” And they KEEP your money in an account, until you’ve amassed something like half the total amount you owe. Then they contact the credit card people and negotiate a settlement, 50 cents on the dollar. Since you’ve been essentially a deadbeat the entire time this money has been accumulating, the credit card company is DELIGHTED to finally get SOMETHING, and the negotiation will usually be accepted.

HOWEVER: The credit card collection people will still be calling you all this time. They are bullies, they harass you, and some nasty folks even threaten. THEN, when the negotiation takes place, you’ll get a big black mark on your credit score because you did NOT pay all the money you owed.

How do you find the reputable people? For us, it was NOT through TV ads. I think we used an old fashioned phone book, and I also did an Internet search. The “good guys” are actually financed completely by the credit card companies. They are nonprofit agencies, and they only charge the clients a very small handling fee each month. The classes are available to you, and I even received a little monthly newsletter with all kinds of hints and money saving ideas.

We used American Consumer Credit Counseling, http://www.consumercredit.com/

I can only say good things about this service.
~VOW

3

Not to hijack the thread, but could someone please explain this to me? And no, “just because they are evil corporations and want to screw the little guy”. Why when a customer is in trouble, struggling to make their payments, credit card companies flat out refuse to work with them. In fact, they keep increasing the interest and tack on late fees and penalties making the chance of the customer ever catching up grow slimmer each billing cycle.

The reason I don’t buy the “evil corp who just want to screw the little guy” is that by following that train of thought they are never going to recover their money. As much as the rich corporations might hate the little man, they love money more. So, why would they make it impossible for someone in trouble to ever get out of trouble, thereby screwing themselves in the end? Wouldn’t it make more sense to cut their line of credit off so they can’t spend more, lower their interest rates and waive penalties? Then they can get their money back and can shed the customer to prevent future loses.

What is the reason of the lack of logic in all of this?

4

To obbn:

The only “bad guys,” really, would be the for-profit credit “counseling” agencies who charge a higher handling fee, AND who negotiate with the credit card companies for a settlement at say, 50 cents on the dollar. The way they handle the accounts does not stop the credit card companies from using collection services. If you’ve already got hefty money problems, continued calling from people demanding (and threatening) payment that you DON’T have is horrendous.

The other bad guys would be the collection folks who make those demanding calls. There ARE federal laws as to when they can contact you and where they can contact you, and the creative collector often skirts them gladly. Some collectors threaten imminent arrest and jail sentences if payment is not made immediately.

My point of view is that I absolutely owed the money to the credit card people. But I was in over my head, due to various reasons. The calls were increasing, and the monthly statements I was getting showed bigger and bigger payments due, the amount owed balance was increasing with the penalties and late fees, and the interest rate was climbing into the stratosphere. I could NOT pay the bills, but I knew I owed the money.

A reputable credit counseling agency was my saving grace.
~VOW

5

I’m sorry, but I think people are misunderstanding the intent of this post. Credit counseling services seem to be geared toward people who are in over their head and can’t even make minimum payments (e.g. they have to decide each month whether they are going to pay the mortgage or the credit card, cuz by golly they can’t pay them both.) I think the responses here are along that lines. I’m interested in whether or not “credit counseling” is available for people who are currently making ends meet (e.g. they CAN pay their mortgage, car payment, and at least the minimum payments on all their credit cards), but they want to prevent themself from falling into a position where they start to get hounded by collection agencies to the point where they actually need a formal Debt Management Plan and/or they want to improve a bad credit rating from the PAST.

Are there counselors that do that, or is one looking more at finding a traditional talking therapist and or a financial adviser (I thought that they did more on the investment side - do they counsel people on debt?).

E.g. if a person was considering moving from renting toward owning with a mortgage but wasn’t certain if they were up to it, and wanted some counseling… E.g. “Mr. Smith, I see you are considering a $200k, 30yr mortgage. I did some research and according to the numbers, based on your job and industry, you have a 75% chance of being laid off within the next five years, and the typical time to find a comparable job is now 1 year. Given that after the mortgage down payment you will only have $2000 in savings, which won’t last you long if you lose your job, and that based on your income you will not be able to save more than $1000 a year if you get this mortgage, I cannot recommend a mortgage at this time because the chances that you will end up in bankruptcy court, foreclosure, or a Debt Management Plan are very high.”

6

Robert, check that link I provided to ACCC. I think they do provide the service you are looking for.
~VOW

7

Get out of debt, save 6-12 months of living expenses as a cushion, stay out of debt, don’t borrow more than 3 years salary to buy a home, and get it in a 30 year fixed rate mortgage with 20% down and no prepayment penalty. Pay it off as fast as you can.

8

You can always make an appointment for free with a credit counselor at just about any credit counseling agency, like the one pointed out by VOW. It’s free and you have nothing to lose but I’m not sure that is what you are looking for.

For improving your credit score the fastest, you just need to know how credit score work. Clark Howard has an extremely user friendly website with those types of resources. Here is his Credit Score Guide on how best to manipulate your credit score.

One trick is to have a family member with good credit to list you as an authorized used on their credit cards.

If you don’t want to call the show, which is difficult to reach, you can call their hotline. He has a team of volunteers he has trained that answer questions all day off the air. It’s a resource more people should know about. He is also big on consumer advocacy, or rather consumer empowerment, so that might also cover the latter part of question number 2. You can podcast his shows. He also has a discussion board.

For intricate questions like this you may want to consider a paid adviser. I used http://damonday.com/ about six months ago and was very happy. It was about $150 for an hour, but he’s more than willing to answer follow up questions through email or a quick phone call. He’s easy to talk with and patiently answered everything I threw at him. He doesn’t sell anything or get kickbacks, which also eases my mind. His blog is also a valuable resource. I learned of him from the get out of debt guy which I also find helpful. You can also try and get a question answered on one of their blogs, though I don’t know how likely that is.

Hope some of these resources help.

9

Oh yeah. CreditKarma.com(or also Quizzle.com and Credit.com) are useful free tools to keep track of your estimated credit score. They are mentioned in Clark Howard’s guide, though I couldn’t vouch for them personally.

He also has a FICO score simulator where you can answer questions like “What happens to my credit score if I do…”