Credit Repair Companies Versus Consumer Counselling

Credit repair and consumer credit counseling are different forms of financial assistance that help those who face large debt or out of control credit. In the case of credit repair, the goal is to rebuild credit rating or credit score with the help of a third party claiming to be skilled at negotiating with creditors and credit agencies.

Credit counseling is different from credit repair services as there may be a conditional requirement by either a lender or court.  For example, in the United States, consumers who file for bankruptcy are often required to receive consumer credit counseling as part of the bankruptcy filing procedure. Credit counseling may also involve debt management and debt settlement services.

Credit repair

According to the U.S. Federal Trade Commission (FTC), credit repair company's are often scams. The proliferation of such scams led to the rise of the Credit Repair Organizations Act which made it a requirement to receive a copy of any contracts before signing them. Even so, credit repair company's may be apt to creating misleading promises that consumers should be aware of.

The fact of the matter according to consumer advocates is that there's nothing a credit repair company can do for hundreds of dollars that an individual cannot. It may seem intimidating or complicated dealing with poor credit, but that doesn't have to be an excuse to lose money paying for a service that can be done for free. If there's nothing a credit repair company can fix after they receive your money, they don't pay it back.

To illustrate the above point, credit repair company's tout being able to correct erroneous information on a credit report if there is any at all. An individual can do this by visiting www.annualcreditreport.com and obtaining a free credit report then sending a dispute letter such as the one available at the Federal Trade Commission's website.

Consumer credit counseling

Consumer credit counseling generally has a more specific and legal function. In regard to pre-bankruptcy counseling, consumer credit counseling is also required to be free for those who cannot afford according to the FTC. The U.S. Department of Justice provides a search form on its website that allows consumers to find a legitimate consumer credit counseling service.

Bank of America distinguishes consumer credit counseling into two groups. Those two groups are debt management agencies and debt settlement companies. Both may provide consumer credit counseling, but the latter is an alternative to bankruptcy that can have a negative influence on one's credit report and costs more. Debt management companies are more educational and help consumers proactively eliminate debt while building credibility.

Credit counseling and debt management companies can also help individuals avoid foreclosure in some instances. For example, the U.S. Department of Housing and Urban Development sponsors an approved housing counseling agency program nationwide. These approved credit counselors can assist with existing and future credit and debt obligations. Thus, consumer credit counseling is not necessarily exclusive to bankruptcy proceedings, but also serves as a financial planning mechanism that helps individuals manage their debt.

Sources:

1. http://bit.ly/aXYN5p (Federal Trade Commission)
2. http://bit.ly/PtC5l      (Department of Housing and Urban Development)
3. http://bit.ly/bhQe4Z  (Overnight Credit Repair Services)
4. http://bit.ly/cuELwf   (Bank of America)