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An established credit guidance agency will allow you to build a repayment program along with your creditors and educate you on better money management strategies to avoid debt later on. However, many credit guidance services exploit people who are usually financially vulnerable, so proceed cautiously.

The Federal Trade Commission Act forbids “unfair or deceptive acts or practices” of repairing credit, debt settlement or counseling agencies. Some states have got laws that make it illegal for credit service organizations to say to be able to improve credit scoring.

And in some states, consumer credit counseling services must register with the state Attorney General’s office and have a surety bond to work.

Voluntary Certification and Accreditation

The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that sets voluntary requirements for credit advice agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 credit advice packages that meet NFCC standards.

To be accredited by the NFCC, a consumer credit counseling agency should be accepted as non-profit by the IRS and also have the proper local business licenses. To earn NFCC certification, a credit counseling program also needs to use adequate checks and balances to safeguard consumers, including:

• Auditing operating and trust accounts every year
• Offering consumer education programs
• Providing detailed reviews of consumers’ income and debts, and an assessment of how each consumer got into financial trouble, with a written action plan for reducing debt
• Disbursing funds to creditors at least twice a month, or sooner in emergencies
• Giving clients a financial statement at least once every three months

The Association of Independent Consumer Credit Counseling Agencies (AICCCA) is yet another national organization with similar standards.

You’ll want to consider before signing up with a credit counseling agency that doesn’t belong to either of these voluntary organizations.

Warning Signs

What should tip you off that you may be dealing with a less-than-reputable program?

Watch out for illegal fees, sometimes disguised as contributions. If your setup fees or monthly charges have grown high, they will wipe out any gain you might have made against reduced finance charges, and you would bebetter off negotiating directly along with your creditors.

Another warning sign is usually outrageous claims to instantly repair your credit standing. Credit rebuilding is really a gradual process, and it’s illegal to try and make positive changes to history of credit by constructing a fresh, false identity.

You must also stay away from advance fee loan scams, where you’re asked to fork over money to obtain a promised loan. Under the FTC’s Telemarketing Sales Rule, there is no-one to legitimately ask that you pay before you actually receive a loan or credit. So be skeptical of any consolidation loan, get everything on paper, and don’t give your bank card, bank-account or Social Security information over the phone or on the internet.

Educate Yourself

The best way to protect yourself against unscrupulous credit counselors is to:

• Check out the program’s reputation with your state Attorney General and local Better Business Bureau, and find out how long they’ve been in business
• Confirm with your creditors ahead of time that they will work with that particular company
• Understand exactly what services are offered, and whether those services address all of your debts
• Get the specifics of any monthly fees, and find out whether you’ll still be obligated to pay those fees whether or not you continue to participate in the program
• Get all promises in writing
• Read your written agreement carefully

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