Using a consumer credit counseling agency before getting ready to purchase a home is a very bad idea. Consumer credit counseling only damages your credit score. When you have excellent credit it becomes much easier for you to get a loan with a low down payment, a lower interest rate, and better terms. Yes, it is an excellent idea to mend your credit before going to apply for a mortgage loan, but the use of consumer credit counseling can be a grave mistake.
First it is a good idea to get an understanding of what a credit score is. A credit score is simply a number between 300 and 900. The higher this number is the more credit worthy you as a borrower actually are. Factors like late payments, tax liens, collection accounts, and paying below the minimum payment can badly damage your score. A responsible credit consumer will make sure to pay off revolving lines, and to always make payments on time. Although it is only a number, it is a number that can either save or cost you money. The higher your score, the better your chances are of having good terms and a good rate on your mortgage loan. Also, the action you take on your credit report before attempting to take out a mortgage could definitely sway a lender’s decision in funding your loan.
Creditors see actions like undergoing credit counseling as nothing but signs of trouble. First and foremost if you are having difficulty paying your bills, you really should get your finances straight before attempting to take out a mortgage. Credit counseling only reflects negatively on your credit report, and is something a lender will frown upon in making a decision to loan you money. Other factors that can prove to be negative are things like a high balance to limit ratio, too many credit inquiries, and too many open credit accounts.
The number of credit accounts that you have opened can have a ghastly effect on your credit score. In an ideal setting you should have no more than 4 to 6 lines of credit or credit cards that are open. Too many credit cards can be a reflection of improper money management or can show a tendency to buy impulsively. As mentioned earlier, credit inquiries can also affect your credit score. Each time that someone inquires on your credit it is recorded and can lower your score as much as 5 points. Credit inquiries may be safe when you have a few in a short period of time (if you are shopping for a lender to fund a particular loan) or if you personally make inquiries into your credit report.
Making a late payment can be one of the worst decisions to make prior to taking out a mortgage loan. FICO, which is the organization that is in charge of calculating your credit score, does not distinguish between the types of late payments you make, whether they are credit card or mortgage payments. In the case of a mortgage lender they are concerned about making late payments, and making late mortgage payments in particular. So, it is always best to make your payments on time, but be sure to make your mortgage and/or rent payment first before all others. If you will take on credit responsibility, your future in owning a home stands a better chance. By not taking care of your obligations, you could waste a lot of money in the long run.
