Okay, I need to figure out what will improve our credit. Here's the story-
Dh used to have perfect credit, then we ran up some ccards, and because we were in so deep and his salary went down, we decided to go with credit counseling. All but two of our cards went on the plan (the two that aren't we pay by ourselves separately). We did know that doing the credit counseling would hurt our credit score, but naievly (sp) thought that the score would go from perfect to "good" or "okay". Well, we discovered recently when we applied for a car loan that our credit score is pretty crappy due to the credit counseling. Dh went from a score of 690 to 550! Yikes! We do have a few positives on our report, the mortgage, car loan, and two credit cards that aren't on the plan look good, and we have a few "paid in full" accounts.

Anyway, my question is- we want to move eventaully, hence another loan. To improve our score, we were told by the credit card companies (Discover and Providian) that if we stop the credit counseling and pay them directly it will look good on our credit report, as they will report it positively. As it stands, on our report each month it says something like "being handled by a credit counseling agency" which is what is killing our score. However, they *say* that if we go off the plan they will report it normally again.

We can afford to pay the cards without the credit counseling, but it will take much longer to pay them off as the interest rate will be higher if we go off the plan. However, it is more important that our credit rating is good, you know?

How can I find out if our credit score will improve if we go off the plan?

Any advice? Anyone done this? Help?

Kristi

We are in credit counseling as well. The way I understood it (after the fact) is that it isn't much different than chapter 13. We have been in CC for 3 years and have a CS of 650 (which is still considered "fair"). We applied for a loan is when we learned the CC is viewed basically the same as Chapter 13.

How long have you been in CC? As long as they are making your payments on time this isn't lowering your score (at least that is what I was told), but infact showing a steady payment history. They only know you are in CC if they pull your CH and see that it is being handled as such. I was also told that once you finish the CC, that the note that it is being handled as such will be removed (but you should check your report to make sure)

High amounts will lower your score, late payments, Length of history, and too many inqueries can also lower your score. (There are so many factors. They like for your accounts to be less than 1/3 your limit.

We plan on continuing with CC for a bit longer and then we will get a loan and combine what is left. This loan will also help bring our score up more.

We have received credit since being enrolled, but we do not have, nor use any credit cards at this time. Once we get the loan, we will get one card and pay it off every month. This will also help increase our score.

There is lots of info on how credit works and how you can improve it.

Here is a good link

http://moneycentral.msn.com/content/Banking/Yourcreditrating/P38052.asp

FYI- 690 is a good score, not nearly perfect. We have about 704 and were turned down by Ford Credit- we needed a 720 for them. Though, through our credit union, we got the same interest rate ford was offering, just not the extra $1000 rebate. I also thought that it was an excellent score- apparently it is good enough for prime loans, but not good enough to be perfect- which I believe is 800??

Originally posted by mommy2maya
FYI- 690 is a good score, not nearly perfect. We have about 704 and were turned down by Ford Credit- we needed a 720 for them. Though, through our credit union, we got the same interest rate ford was offering, just not the extra $1000 rebate. I also thought that it was an excellent score- apparently it is good enough for prime loans, but not good enough to be perfect- which I believe is 800??

The 690 was our score right before we did CCC, so it wasn't perfect, as we were maxed out so had a high debt to income ratio. Prior to that, when we got our home loan, it was higer, in the 700's. So, maybe it wasn't *perfect*, but there weren't any flaws, and the debt to income was very low, kwim?

When we just got our new (used) car, we were dreaming of Volvos, and they told us that their lowest score to finance is 670 (obvioulsy with a higer interest rate). Ford was going to finance us with dh's new crappy score, too, so I wonder why they turned you down?

Raindazee, thanks for the info. In our case, being in CCC is reported differently on our credit report- I saw it myself. Instead of saying "paid" or "okay" or whatever, it shows that the account was closed and is being handled by a third party. It does show that we are current in those payments. Our credit union told us that what was killing the score. So I called the ccards and asked them, and they confirmed that and said that it does look better if we are paying them on our own.

My other concern is that if we continue with CCC and pay in full, will that look good? CCC said that it can still be difficult to get credit even after we pay it off. The credit card companies agree. So, what to do?

We were able to get a car loan, though the interest rate is high. I just want to be able to clean up our credit so that when we go to buy a house we can qualify for low interest rates.

Thanks!

Kristi

I used to work for a credit counseling agency. All the things the loan company said are true - it really hurts you credit-wise. PM me if you want more details.

However, I must say - it seems that people are more and more lenient about it - it all depends on the loan company. I have some friends who finished paying off their debt with cc and then bought a house a month later.

The reason they gave us also included never having a car loan before, and that we have never had that much credit before.

grrrrrrr.......don't you hate that?! Dh never used to use ccard, always paid for everything w/cash, to avoid going into debt. He did have two small c/cards that he occasionally used but paid in full each month (if there was even anything on them)........but then he closed them.

So, he went to apply for a mortgage......and got turned down, because he didn't have credit. They told him he needed three open accounts. So, he had to get three credit cards, run them up and pay some of the balance....and then he reapplyed and got a mortgage. So silly.


Kristi

What happens to your credit during counseling largely depends on how your lenders report your account to the credit bureaus.

First USA, the credit-card giant, reports its customers as delinquent on their bills until they make three consecutive payments of the new minimums negotiated by their credit services, said spokesman David Webster. Citibank, by contrast, simply adds a note to the credit bureaus’ files that the customer is enrolled in credit counseling.

Being reported as late or delinquent can certainly hurt your credit score, the three-digit number widely used by lenders to determine creditworthiness. A simple notation about credit counseling probably won’t. The credit score formula used by most lenders, known as FICO, now ignores any reference to credit counseling that may be in your file, said Craig Watts, spokesman for FICO creator Fair Isaac & Co.

Even some lenders that were traditionally suspicious of credit counseling have loosened their stance. More mortgage lenders are willing to lend to people who have successfully completed repayment plans, said mortgage broker Allen Bond, president of the California Association of Mortgage Brokers’ Southern California chapter.

Some lenders say they even view credit counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company’s eyes by enrolling in -- and sticking with -- a debt repayment plan.


http://moneycentral.msn.com/content/Savinganddebt/Managedebt/P36234.asp

I got the above from that link.

I know when we applied for the mortgage the man told us that even though some lenders view the CC the same as a chapter 13, the difference is as soon as we finish paying off the debt we will be able to obtain a mortgage. He said that the notation about CC would be removed from the report.

Our report does show some of the accounts as being closed and under CC, but some of them don't show that, just paid as agreed. So it really depends on the lender.

We never fell behind with our payments, but our balances were never going down.. so that is the reason we decided to go with the CC.

If we would have continued to pay on the cards with out CC, we would never get them paid off. We have paid our debt down by 75% within the 3 years we have been using it. For us, it was better than the alternative of filing bankrupcy.

I know we will NEVER make the stupid choices we did before. We are very careful with our credit now, and have a few new established good accounts outside of CC now, as well as every one of them being paid as agreed.

GL with your decision. It is a tough one to be in. I know with our debt to income ratio, this was the best avenue for us and we will be debt free in a year! (woohoo! lol) and are one step closer to owning a real home! (we own a mobile home now)