Understanding FICO® Scoring

[07sky04]

Hi,

I'm considering taking all of my debts to a credit counseling agency for 2 goals - 1 to lower my payments/interest and 2 to get a game plan on when this stuff will be paid off, an actual "end" date if you will.

I'm wondering what effect it will have on my credit score?  Obviously, I don't want to do it if it will hurt me too much, but to save $90+ dollars a month in interest (which I would just apply toward the payments anyways) and to know it will all ($22K) be paid off in 5 years instead of the 40+ it would take by paying minimums... it sounds tempting!

What's your take on it?  Currently, I'm in the high 500 range (550 to 595) and just had all collections removed, 2 30 Day late payments in the past year (all others current) and nothing else derog.

[Joe77]

In theory, it doesn't hurt your SCORE, but it can still prevent you from getting a loan, especially a mortgage.  The presence of "Managed by Credit Counseling Service" on your credit report is looked at the same way as a Chapter 13 Bankruptcy by most lenders.  The only difference is once you're done, there's no longer any evidence of it, as long as you make sure all creditors update the TL to NOT say that it's in the credit counseling.

That said, there used to be a few of these services that did hurt your credit - not sure if they're still around, but I have seen it happen to a couple would-be mortgage clients of mine.

This guy had a 702 score but $50,000 in revolving debt.  The Counseling Service he went with actually collected payments, but DIDN'T MAKE PAYMENTS ON THE CREDIT CARD ACCOUNTS until a "negotation" period was up - which could take 90 days or so.  Therefore, a guy that at one time had zero delinquencies now had 90-day lates on almost every account - and his score plummeted to the upper 400s.  Took him 4 years to recover.

[masdeocho]

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07sky04 wrote:

Hi,

I'm considering taking all of my debts to a credit counseling agency for 2 goals - 1 to lower my payments/interest and 2 to get a game plan on when this stuff will be paid off, an actual "end" date if you will.

I'm wondering what effect it will have on my credit score?  Obviously, I don't want to do it if it will hurt me too much, but to save $90+ dollars a month in interest (which I would just apply toward the payments anyways) and to know it will all ($22K) be paid off in 5 years instead of the 40+ it would take by paying minimums... it sounds tempting!

What's your take on it?  Currently, I'm in the high 500 range (550 to 595) and just had all collections removed, 2 30 Day late payments in the past year (all others current) and nothing else derog.

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I think you've done a great job at cleaning up the baddies.  (Was this forum helpful????!) Why pay someone else to finish?  I'll bet you can negotiate payment terms without going through a credit counseling agency.

Joe is right that the bad companies can hurt your credit if they don't pay on time.  If you have to monitor whether or not payments are being credited to your account, they are not saving you any time or work.  Don't fall into the trap of thinking someone else is taking care of things -- I know someone who entered a DMP (debt management plan, which is what you're talking about doing) and her interest rate actually went UP 7% instead of down, and because she wasn't checking her bills she didn't notice it for a while.  And she was paying the credit counseling agency a monthly fee!!

To pay the least amount of interest in wiping out yout debt, pay the credit cards with the highest interest rates first.  Others may chime in with the approach that you should pay lowest balances first to give yourself psychological satisfaction of paying off TLs.  In the end it's a personal decision what approach you prefer.  Good luck! 

[Tuscani]

According to http://www.myfico.com/CreditEducation/WhatsNotInYourScore.aspx

"Whether or not you are participating in a credit counseling of any kind"

I have seen situations where the notation is worse than a BK (not neccessary scoring reasons)!

When you are in CCCS, your TL's get marked as "managed by consumer credit counseling". That is probably worse than a BK because it's a sign that you are having financial problems..and the BK option is still available to you. You're a time-bomb for default, most lenders will not go within 100 paces of you.
 
Things will generally remain that way for the duration of the program, 3-7 years.
Once you are finished, those notations are supposed to be removed. You may find some of your creditors will even re-open your accounts. If the notations are removed and your OC's havent added lates, CO's or other such notations, (AND the CCCS place has paid the proper amounts at the proper times sometimes a big "if") you're good to go. No damage done.

[masdeocho]

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Tuscani wrote:

According to http://www.myfico.com/CreditEducation/WhatsNotInYourScore.aspx

"Whether or not you are participating in a credit counseling of any kind"

I have seen situations where the notation is worse than a BK (not neccessary scoring reasons)!

When you are in CCCS, your TL's get marked as "managed by consumer credit counseling". That is probably worse than a BK because it's a sign that you are having financial problems..and the BK option is still available to you. You're a time-bomb for default, most lenders will not go within 100 paces of you.
 
Things will generally remain that way for the duration of the program, 3-7 years.
Once you are finished, those notations are supposed to be removed. You may find some of your creditors will even re-open your accounts. If the notations are removed and your OC's havent added lates, CO's or other such notations, (AND the CCCS place has paid the proper amounts at the proper times sometimes a big "if") you're good to go. No damage done.

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This never made sense to me.  You'd think the system would register someone taking definitive steps to pay off their bills and improve their credit as a positive sign.  Guess it falls into that part of the matrix where a paid collection does not give you any more brownie points than an unpaid collection.  The fact that it counts as such a negative probably says more about the credit counseling agencies' failure to deliver their services.

[07sky04]

These forums have been a tremendous help in cleaning up my credit!!  I am so greatful.  That's why I thought I would post and ask the question about the CCCS.

If I were to call my creditors and ask for lower interest, payments - how do I really approach it?  I've never done that before (negotiated payments, interest rates, etc).  If I can do it myself and not use the CCCS, I'd be much happier!!  Is there a post somewhere that talks about this that I'm missing?  I loved the GW and PFD letter templates I found.

Thanks!