Credit Counseling
CreditGlossary term
Definition
A service provided by certified professionals who help you manage debt, create a budget, and develop a plan to improve your financial situation. Nonprofit credit counseling agencies can negotiate with creditors on your behalf to lower interest rates or set up a debt management plan. Reputable agencies are accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America.
Related terms
- Debt-to-Income RatioA financial metric that compares your total monthly debt payments to your gross monthly income, expressed as a percentage. Lenders use this ratio to assess your ability to take on additional debt, and most mortgage lenders prefer a ratio below 43%. A lower debt-to-income ratio indicates you have a healthy balance between debt and income.
- Settled AccountA debt that has been resolved by paying less than the full amount owed, typically through negotiation with the creditor or collections agency. While settling a debt is better than leaving it unpaid, a settled account on your credit report signals to future lenders that you did not fulfill the original terms of the agreement. Settled accounts remain on your credit report for seven years from the original delinquency date.
- Credit RepairThe process of improving a damaged credit score by addressing negative items on your credit report, such as disputing errors, negotiating with creditors, and establishing positive credit habits. While you can do credit repair yourself for free, there are also companies that offer these services for a fee. The Credit Repair Organizations Act requires credit repair companies to be transparent about their services and prohibits them from charging upfront fees.
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