Here at Auto Credit Express, one of the topics that came up yesterday concerned credit counseling. If you are thinking about applying for a bad credit car loan, there are a number of things that you should consider before you look into credit counseling…

How credit counseling can help you

At its best, working through a credit counseling agency can help you reduce your debts through a structured program that normally lasts from 2 to 4 years. In addition to eliminating debt, it can, in the short term, reduce the amount of interest you are paying. It can also reduce, through negotiation with creditors, the total amount of your debt. Fair Isaac, creator of the FICO score, also states that the fact a person has signed up with a credit counseling agency will not affect their credit score. Why, then, wouldn’t you want to “sign up”?

The drawbacks to credit counseling

This announcement, titled “IRS Announces ‘Dirty Dozen’ Tax Scams for 2006”, from the Internal Revenue Service article number IR-2006-25 dated February 7, 2006 sums up the pitfalls of credit counseling:

“Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment plans or impose high set-up fees or monthly service charges that may add to existing debt. The IRS Tax Exempt and Government Entities Division is in the process of revoking the tax-exempt status of numerous credit counseling organizations that operated under the guise of educating financially distressed consumers with debt problems while charging debtors large fees and providing little or no counseling.”

While there are many legitimate credit counseling organizations out there, you need to be careful and perform your due diligence research before signing on the dotted line with any agency. And even though your FICO score is not affected, many creditors will place a notation on your file that you are in credit counseling. This notation alone may cause some credit grantors to refuse you credit.

Finally, due to the strict conditions of many credit counseling programs, you may not be allowed to enter into any additional debt (such as a car loan) while you are participating in the debt reduction program. If you do, the program is cancelled and you are again responsible for all debts is if the program had not existed.

The Bottom Line

Before you enter into any kind of credit counseling program, investigate the agency as well as the program stipulations. If you need a car, you may to investigate buying one before you begin credit counseling. For more information on bad credit car loans, visit our site at www.autocreditexpress.com. Remember, here at Auto Credit Express, we want you “on the road” to better credit!