If your credit card debt has become a problem that you can’t seem to fix, you may be tempted to use a credit counselor to help you lower your monthly payments. However, this could harm your long-term credit rating, according to Jane Shebroe, Branch Manager for 1st Metropolitan Mortgage in Little Falls, New Jersey. “I have had many credit-counseled consumers looking to refinance, or purchase a home. In the process, they were devastated to learn that their credit history was badly damaged because of credit counseling. They claimed the credit counselors never told them that this would happen. Under each negotiated item listed, their credit report reads ‘In Credit Counseling.’ Most banks and creditors will turn down a loan application if those three words appear on the credit report, regardless of good credit scores.

If a loan does get approved after credit counseling, the interest rate and monthly payment will most likely be very high. The lender will view this borrower as a high risk. Therefore, the lender must charge a high interest rate to justify taking such a risk. Many lenders risk a credit-counseled consumer the same as if in bankruptcy.” Shebroe says that while many credit counseling services promote their non-profit status, this should not be seen as a sign of greater credibility.

Published 08/23/05 (Modified 05/07/12)