- Review the credit consequences of a credit counseling program.
- Examine why creditors view enrollment in credit counseling program as equivalent to a Chapter 13 bankruptcy.
- Try to wait until you finish your debt management program, before financing a major purchase.
BILL'S ANSWER
While you are enrolled in a credit counseling program with a debt management plan your credit score will not be affected, but a special entry will be placed on your credit file. The entry on your file will generally say account is in a"DMP" or "credit counseling". This entry is put there to notify potential creditors that you needed the assistance of an outside party to help you manage your debt. The effect of this is often to stop you from obtaining additional credit (the idea being that you are in a credit counseling program to get rid of debt, not to accumulate more). Once you have completed your credit counseling this entry is usually removed or updated to reflect that you have finished the program. If you notice it has not been, you should contact the credit bureaus to have the notation removed.
Although a credit counseling is supposed to help you in the long run, in the short term, it makes it difficult for you to obtain new credit because the thinking is that you went into the credit counseling program to get your debts paid off because you were unable to manage it on your own. According to the new Bankruptcy law, for anyone wishing to file for a Chapter 7 bankruptcy, it is mandatory for him or her to first enroll in an approved credit counseling program. Therefore, some creditors may view the fact that you are enrolled in credit counseling program as a precursor to bankruptcy.
Depending on how long you have been enrolled, I would suggest that you wait until you finish the program and then apply for the loan. If you are not in a position to wait then one option I can think of is to get a co-signer or a guarantor for your auto loan. Another option is to seek financing from somewhere that offers loans to people with bad credit, but you will end up paying a higher interest rate.
You can read more about credit counseling at Bills.com.
If you would like to get quotes from more lenders to see if you would qualify for an auto loan, Bills.com makes it easy for you. Just fill in your information on our auto loan page and a qualified lender will get in touch with you to discuss your options. Be sure to explain your situation them so that they are aware about you being enrolled in a credit counseling program.
I hope the information provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
July 20, 2010
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