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How does credit counseling affect credit

How Debt Counseling Services (CCCS) Can Affect Your Mortgage Application

Debt Counseling Services (a.k.a. CCCS - Consumer Credit Counseling Service) can negatively affect a mortgage application and hurt credit scores.

Reputable Debt Counseling Services help consumers budget and pay off their credit card debt. They negotiate with creditors to lower interest rates and payments. Most are listed as non-profit organizations.

Typically, they do not report to the credit bureaus. However, many of the creditors do report to the bureaus. They report that the account is in a Debt Counseling program. This can negatively affect a mortgage approval.

Also, late payments that result from poorly managed programs can hurt credit scores. Unscrupulous counseling services have been known to allow accounts to go 30, 60, and 90 days delinquent while they negotiate with creditors.

And some creditors that agree to accept lower payments will report the account as delinquent regardless of whether any payments were missed.

Government (FHA. VA. and USDA ) and Conventional mortgage programs have restrictions regarding borrowers currently in a Debt Counseling Program.

Government (FHA, VA, USDA) Restrictions

Government loan programs typically treat debt counseling the same as a Chapter 13 Bankruptcy. A mortgage application may be approved if an applicant has been satisfactorily paying on their debt counseling program for twelve months. And the debt counselor has to recommend that the borrower is a good credit risk.

Most FHA lenders also have their

own underwriting overlays. So even if a borrower meets the criteria above, they can still be turned down.

For example, lenders may require that the borrower quits the counseling service or that the debts in the program be paid in full prior to closing. Others might reject the loan application altogether.


There are no official guidelines pertaining to Debt Counseling for Conventional Loans. Generally, if the loan passes through the automated underwriting engine with an approval, the loan qualifies.

Still, like government loans, many lenders have their own overlays. The most dramatic being that a borrower has to wait 2 years after completing a debt counseling program and have zero late payments on all debt during that time before being able to qualify for a mortgage.

A Warning

Overall, these organizations provide a good service. But unfortunately there are many predatory debt counseling services that aren’t always upfront and honest about the services they provide.

Many will tell you entering into the program will not negatively affect credit or future financing possibilities. And they routinely allow late payments to occur which, as stated above, can seriously damage credit scores.

Borrowers should research several organizations before entering into a debt counseling program.

The Bottom Line

Meridian Home Mortgage has many options for borrowers seeking to refinance. We specialize in researching and approving the best mortgage program available. Contact one of our Personal Advisors for more information.

Category: Credit

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