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Is Consumer Credit Counseling a Wise Choice Before You Refinance?

By Gabriel Traverso
Mortgage Credit Problems Columnist


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Like many with bad credit you may have heard that consumer credit counseling services can help you lower your monthly payments and get out of debt. You may also be asking yourself if working with these services will affect whether you can qualify for a bad credit mortgage refinance.

If you have bad credit and too much debt, enlisting the help of a consumer credit counseling service can help you get above water. You can lower your monthly payments and start rebuilding your credit history and, over time, raise your credit score. These services were born out of a need to provide consumers with alternatives to filing for bankruptcy. Consequently, some homeowners think that lenders might view them in the same light.

What Does the Lender See?

When a bank sees a loan application from someone enrolled in a debt management program the lender knows there is a higher likelihood the borrower may default -- the same is true for those who have filed for bankruptcy in the past. However, a debt management program is not bankruptcy. Your lender will likely want to know more information about the circumstances that led to your bad credit and why you elected to engage the help of a credit counseling service. The lender is probably going to view the counseling as a flag and look at your file with greater scrutiny.

Don't Hesitate

If you have circumstances that make applying for a bad credit mortgage refinance the best option for you then don't wait to apply. If you haven't applied yet and are thinking about a debt management program to improve your bad credit then consider this: it takes time to improve your credit. Lenders will want to see an established record in the program and that you are making payments on time. If you get started with a consumer credit counseling service you might want to wait a few months before applying for your bad credit home loan refinance.

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