Credit counselors and debt management firms do not improve your credit record or boost your credit scores

Why go to a credit counseling-debt management service? Three reasons: To get help with budgeting; to seek legal advice about bankruptcy and creditor collection practices; and to prevent or stop creditor collection efforts. If you've got good credit, budgeting assistance can help you retain it. If you've bruised or busted your credit, however, debt management or consolidation plans will not redeem you anytime soon. To most creditors, you either pay your bills on time or you don't.

They may agree to accept less money than you owe on revised terms as the best outcome for a bad situation, but your credit file will still get hit with a write-off unless you negotiate otherwise. If in collection, that, too, will remain. In general, neither Fannie Mae's nor Freddie Mac's underwriting will accept mortgage applicants who currently participate in debt workout plans (including Chapter 13 bankruptcy). Conventional loans have generally required two years of nearly clean payments after completing debt rehab.

FHA and VA lenders, though, do take a case-by-case approach. If you've got a good story to explain your past credit problems, neither FHA nor VA will reject you arbitrarily. After at least one year of paying as agreed, flexible government program lenders may approve your application. Essentially, these lenders (and most others) like to hear how your credit problems arose from a run of misfortune, not perpetual irresponsibility.

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