Good credit means better interest rates on homes, cars and credit cards, lower insurance rates, easier access to rental apartments and utilities and maybe even better job opportunities.
Consumers with bad credit know that. They also know the door is open to join the good credit club … if they can just find a way in.
Credit counseling and credit repair are two routes into the good credit club, two very different routes, mind you, with lots of differences, but two routes nonetheless.
The only real similarity between them is that both work at scrubbing clean some of the smudges on a credit report. They can’t remove accurate stains – things like late or missed payments – but they can try to wipe away negative activity that wasn’t the consumer’s fault like identity theft or accounts that mistakenly wound up with collection agencies.
Their approach to gain that end, however, is vastly different and unfortunately, not all the companies that operate in this section of debt-relief are on the up and up.
Be careful which door you knock on and be sure you know what you’re getting into before you enter.
Understanding Credit Counseling
Credit counseling is a service that educates consumers on budgeting, dealing with debts in a timely manner and managing money effectively. The goal for credit counseling should be to provide the guidance and support that helps a consumer stay out of debt.
Credit counseling covers a lot of financial ground. Counselors are most effective at evaluating your situation and coming up with ways to pay off debt, which is documented in your credit report.
Their efforts include examining your credit report and explaining the impact each item has on your credit score. If you identify mistakes on the credit report, credit counselors should advise you on how to correct those mistakes.
Some other areas they can help with include:
- Advice on setting up a monthly budget
- Steps to take in purchasing a home
- Counseling on student loans
- Whether to pursue bankruptcy
- Saving for retirement
- Educate you on the differences between debt management, debt settlement and debt consolidation.
The cost for credit counseling depends on where you live. Each state regulates the industry independently, so costs vary dramatically.
Nonprofit agencies offer credit counseling for free. However, nonprofits do charge a set-up fee and monthly fee if you enroll in their debt management programs. The set-up fee for a debt management program is usually $50-$75. The monthly fee for the program ranges from $60 down to $0, depending on your situation.