Credit Counseling & Repair

You hurt your credit if financial problems cause you to run up big loan and credit card balances and pay your bills late, but credit counseling and repair may help you get back on track and salvage your credit score. First, find a legitimate counseling firm and choose your best option with the counselor's help. Then focus on credit repair to improve your credit reports as much as possible while you pay down your debt.

Definition

Credit counseling refers to the process of working with a professional agency when you cannot handle your debt on your own. The Federal Trade Commission, or FTC, website explains that legitimate firms have counselors trained and certified by outside agencies and offer services for reasonable fees, including educational materials, classes and individual counseling sessions. Credit repair refers to getting rid of negative material on your Experian, Equifax and TransUnion credit reports so lenders do not see it and it does not get considered in your credit score calculation.

Finding a Counselor

The Better Business Bureau website recommends finding several potential credit counseling agencies through professional organizations like the Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling (see Resources). Ask agencies in your area about their licensing, services, non-profit status, fees and counselor qualifications. The counseling firm you choose should agree to provide a written contract detailing its services and costs.

Options

Legitimate credit counselors base their recommendations on your personal situation, not on options that generate fees for the counseling agency, the FTC advises. Your counselor may help you develop a new budget or refer you to educational materials or financial classes or seminars. You may get a recommendation for a structured debt management plan in which the counselor works with your creditors to develop a repayment schedule to gets you debt free within a few years if you pay it as agreed. The counseling firm then administers the plan. The counselor might even propose bankruptcy if your situation is not salvageable by less drastic methods.

Credit Repair

Credit repair is doable whether you are paying your bills with a personal budget or through a debt-management plan. You can even do some cleanup after a bankruptcy. The FTC advises using annualcreditreport.com to get free Experian, Equifax and TransUnion credit reports, which you are entitled to once each year. Find and dispute negative mistakes by writing letters to the bureaus. The Fair Credit Reporting Acts imposes a 30-day limit during which they must investigate your allegations. Unverified material must be removed, which repairs your credit by getting rid of some of the negative entries.