Criticism of Credit Counseling - Page 3

Another common criticism of credit counseling is the assertion that participating in a Debt Management Plan will ruin a consumer’s credit. Fair Isaac Corporation, the company that pioneered the use of credit scores, states that participation in a Debt Management Plan has no effect on a consumer's FICO credit score. However, the participation in such a plan does appear on consumer credit reports, and the client may have more difficulty obtaining a car or home loan and be denied any further unsecured credit, such as a credit card. This is because lenders often use multiple risk factors to determine creditworthiness. While credit card banks offering relatively low-credit-line cards may use a credit score alone to approve a new account, a mortgage or car lender typically will scrutinize the entire credit report more extensively and verify employment and income information. Some lenders view a prospective customer's participation in a Debt Management Plan as indicative of the customer being unfit to manage their finances.

Additionally, mortgage loans backed by federal programs such as HUD or FHA have additional government underwriting guidelines in addition to the lenders own policies. HUD/FHA states their position on credit counseling is neutral and that a factor they will consider is whether the client has been adhering to the payment plan initially established through the credit counseling agency. The FHA recommends credit counseling programs to those who fear being denied a mortgage loan due to credit approval.