What to Look out for When Looking at Credit Counseling
A reputable credit advice agency will let you create a repayment program using your creditors and educate you on better money management tactics to avoid debt later on. But some consumer credit counseling services exploit people who tend to be financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act discourages “unfair or deceptive acts or practices” of repairing credit, debt consolidation or counseling agencies. Some states have got laws that make it illegal for credit service organizations to say to be able to improve credit scoring.
Plus, in some states, credit advice services must register with the state Attorney General’s office and acquire a surety bond to do business.
Voluntary Certification and Accreditation
The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that sets voluntary principles for credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 consumer credit counseling packages that meet NFCC standards.
To become accredited by the NFCC, a credit advice agency must be accepted as non-profit by the IRS and also have the proper local business licenses. To earn NFCC certification, a credit advice program should also use adequate controls to protect consumers, including:
- Auditing operating and trust accounts every year
- Offering consumer education programs
- Providing detailed reviews of consumers’ income and debts, and an assessment of how each consumer got into financial trouble, with a written action plan for reducing debt
- Disbursing funds to creditors at least twice a month, or sooner in emergencies
- Giving clients a financial statement at least once every three months
The Association of Independent Consumer Credit Counseling Agencies (AICCCA) is another national organization with similar standards.
You might want to think twice before joining a credit counseling agency that does not participate in either of these voluntary organizations.
Warning Signs
What should tip you off that you might be dealing with a less-than-reputable program?
Look out for illegal fees, sometimes disguised as contributions. In the event the setup fees or monthly charges have become high, they will block out any gain you might have made against reduced finance charges, and you’d bebetter off negotiating directly with each of your creditors.
Another danger signal can be outrageous claims to instantly repair your consumer credit rating. Credit rebuilding is a gradual process, and it’s illegal to try to improve your credit rating by constructing a fresh, false identity.
It’s also sensible to watch out for advance fee loan scams, where you’re asked to fork over money to secure a promised loan. Under the FTC’s Telemarketing Sales Rule, there is no-one to legitimately ask you to pay before you actually obtain a loan or credit. So be skeptical of any debt consolidation reduction loan, get all the details on paper, and don’t give your credit card, banking account or Social Security information over the phone or on the net.
Educate Yourself
The most effective way to protect yourself against unscrupulous credit counselors is to:
- Check out the program’s reputation with your state Attorney General and local Better Business Bureau, and find out how long they’ve been in business
- Confirm with your creditors ahead of time that they will work with that particular company
- Understand exactly what services are offered, and whether those services address all of your debts
- Get the specifics of any monthly fees, and find out whether you’ll still be obligated to pay those fees whether or not you continue to participate in the program
- Get all promises in writing
- Read your written agreement carefully
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