If you’re willing to reduce your debt with the help of a certified credit counselor, then it will help you achieve the first positive step towards gaining financial stability. A credit counseling service will provide you with proper guidance to repay your debts and improve your credit. On the process, many aspects of your life will get improved.

However, before you enroll yourself in such a program, you must know that all the agencies that are created are not looking out for your best interest. Hence, choosing a proper credit counseling agency is a major task that will help you erase your debts.

5 Steps to choose a credit counseling agency

Read on to know what aspects you have to consider in order to avoid the rip offs and choose the right credit counselor to solve your debt problems.

1. Consult with your friends and family member:

If any of your friend or family members have faced the same situation like you and have taken help of credit counselor to get out of debt, then you should take their advice. This will help you choose a proper credit counselor that will truly look into your benefits.

2.      Search for a non-profit agency with a good history:

Only searching for a non profit agency to make your process cost effective, will not be sufficient enough to solve your problems. You have to find out how long the credit counseling agency has been in business, and check the BBB (Better Business Bureau) records of it. This will help you know whether or not, there is any unresolved complaint against the company you’ll choose.

3.      Look out for  an accredited agency:

You must make sure that the agency under which you’ll enroll yourself is a current member of at least two of the renowned trade associations, the National Foundation for Credit Counseling(NFCC) and the Association of Independent Consumer Credit Counseling Agencies(AICCCA).

4.      Search for a licensed agency:
You should find out whether or not your credit counseling agency holds a license according to your state’s requirement. For this you have to contact agencies that administer licensing of different debt relief companies.

5.      Gather information about the firm:

It is necessary for you to acquire certain detail information about the credit counseling agency before you sign the agreement. You should find out whether or not, the counselors of the agency are certified or accredited by an independent agency. You should also look out whether or not your counselor is pursuing you to register under them to gain incentives or they are truly willing to solve your problem. Make necessary inquiry of their privacy policies and safe guards to ensure whether or not your personal information will remain secured.

Lastly, you should try to seek an agency that will provide you with a wide range of services such as, budget advice, savings and credit classes and free educational materials at a reasonable fee to solve your debt problems.

Fair, Isaac & Company (FICO) gathers and compiles the data in the credit reports, and subsequently calculates a numeric score to determine your creditworthiness. These numeric rankings are known as your credit score ratings.

The majority of consumer credit companies and mortgage lenders use the FICO scores. You can visit www.myfico.com to obtain information about your FICO score. Sometimes those scores will be provided on the credit score report.

The higher the score on the credit score scale, the better – which means you’ll be able to save money whenever you apply for a loan or mortgage. This is because you will be offered not just lower interest rates, but also more favorable payment terms if you have a higher rating. The lower your credit score, the higher interest rates you will be charged on a loan. The difference between an excellent credit score and low score can translate into hundreds or even thousands of dollars. The score also determines whether you will even be offered a loan.

Credit Score Chart

The following chart is intended to help you understand how the credit score is calculated:

Credit Score Chart

35% – Payment history has the biggest influence on your credit score. It takes into account if you are on time with your bills, any bankruptcy history or bills in collection.

30% – Your Total Amount of Debt. Your debt to income ratio is taken into account. If it’s too high, the score is lower. Amount owing on specific types of accounts. Number of accounts with balances. Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts). Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans).

15% – Length of your credit history. If your accounts are all very new, it’s a minus.

10% – Recent credit inquiries. If you have many recent new inquiries, your score will go down.

10% – Types of Accounts you have. If you borrow from finance companies or pay day advance companies, the score goes down.

In our credit-driven society, credit scores are becoming a critical part of our daily lives – whenever you are buying a house, a car, or even going to college, oftentimes you cannot afford to do it using just the money you have in the bank. And they’ll become even more important in the future.

That is why you should make sure to review them on an annual basis, and make sure they provide as positive view of us as possible.

Read more on MyCreditScoreScale.com Blog.

If you have a good credit score, you may be feeling secure in your ability to obtain credit when you need it. However, you may find yourself in a troubling situation when you apply for a loan and get rejected based on your credit report. You may be wondering ‘what happened?’

Well, even people who always pay their bills on time can get into financial trouble if their credit report is messed up. Read up the article by Harrine Freeman

By now everyone is aware of the Vantage credit scoring system developed by the three major credit bureaus Equifax, Experian and TransUnion that grades consumers on a grading scale of A-F. I have done extensive research but have yet to find out how lenders will use this score or what lenders will choose to use the Vantage score as opposed to the FICO score. Will they be flexible in their analysis and look at the actual score or just look at the grade of A-F.? Unfortunately, no one knows for sure. For now, when applying for a loan ask the lender which credit score they are using.

I recently refinanced my home and the lender used the FICO score. Well, I recently obtained a copy of my credit report and credit scores from the three major credit bureaus, Equifax, Experian and TransUnion. I have not made any late payments in the past 10 years; therefore I expected to get the highest credit score possible or at least very close to it. My scores were 760 and above. When I ordered by Experian credit score I wanted to order a FICO score yet I only had the option of getting a Vantage score. My Experian Vantage score was 819.

Good Credit Score: Even with good credit score you can get penalized

To my surprise all of these ridiculous reasons were given why my credit scores were not higher:

1. Your report does not show real estate loans – this was incorrect, I have had a mortgage for the past 7 years.

2. Your report shows that available credit across your open revolving accounts is too low – I only have one credit card with a limit of $3,000. They are telling me that if I had more credit cards my score would be higher.

3. Your report shows that the ratio of balances to credit limits across your open revolving accounts is too high – My balance on my credit card was approximately $900 which is only 30% of the credit limit which is the suggested balance that consumers should have on their credit cards.

4. Your report shows that the time since your oldest revolving account is too short. – Wrong. I have one revolving account, my credit card which I have had for the past 10 years.

5. Your report shows one or more inquiries on file – I had one inquiry in June 2005. One inquiry in February 2006 and one in October 2006. Inquiries should be obtained no more than twice a year unless you are doing comparison shopping. I am being penalized because I had two inquiries within one year.

Well, needless to say, I wrote each credit bureau and disputed all the reasons they gave me. I received two responses back and am waiting for the last response. After I receive it I will order a copy of my credit report again to see if my scores have increased. I have struggled to find out how one obtains an 800 FICO credit score or higher. From the looks of things it doesn’t seem like that is possible anymore. Whether you have good or bad credit, the credit bureaus will find ways to make sure your credit score is not as high as it can be.

I advise everyone whether you have bad credit or good credit to order a copy of your credit report once a year, read every single line on your credit report and read all of the information provided along with your credit report. Make sure everything listed on your credit report is accurate. Even a few points on your credit score can make the difference between getting approved or getting declined and we all need those extra points. Good luck!

Harrine Freeman is a speaker, personal finance expert and the author of, “How to Get Out of Debt: Get an “A” Credit Rating for Free Using the System I’ve Used Successfully with Thousands of Clients.

She is the CEO of H.E. Freeman Enterprises, a credit repair and personal finance services company. She is a member of the American Association of Daily Money Managers, SPAWN, Toastmasters, AAUW, National Association of Women Writers and the Women Network.

For more information on how to get out of debt or to buy her book please visit http://www.hefreemanenterprises.com She can be reached via email at hfreeman@hefreemanenterprises.com.

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Read more about credit score ranges on this blog.