When should consumers consider working with a financial counselor to improve their credit? Is there a range or situation when it might be more beneficial?

I’m not a believer in building credit simply for credit’s sake. Still, having good credit is about more than just getting the best interest rate on a loan.

• Your credit rating affects your car insurance, so if you’re getting ready to purchase a vehicle or switch car insurance policies, you should meet with a financial counselor.
• Your credit history might be part of a background check the next time you apply for a job, so meeting with a financial counselor before switching jobs or careers could be helpful in landing your dream position.
• Most property managers will set minimum credit scores for applicant eligibility, so speaking with a financial counselor before moving could help you get into a better place to live. Plus, your credit rating determines how much, if any, you will have to put into a utility’s security deposit.
• If you’re thinking about buying a home, you should reach out to a financial counselor ahead of time to put together a plan for building your credit rating. It could mean the difference of tens of thousands or even a hundred thousand dollars of interest saved over the life of a 30-year mortgage. Unfortunately, most homebuyers seek credit advice from their realtor or, at best, their mortgage officer. Realtors tend to have no formal training in consumer credit issues. Loan officers, while they work with credit, focus more on selling and processing loans than on building a customer’s credit. I’ve heard nightmare stories from neighbors and clients of bad credit advice given by a well-intentioned but poorly informed lender or realtor. Seek out a financial counselor or a credit counselor instead.
• If you’re preparing to get married, you might benefit from a meeting with a financial counselor to create a plan to build or rebuild your credit for upcoming changes to your housing, such as moving into a new apartment or purchasing a home.
• For those struggling in their marriage or relationship with a partner, meeting with a financial counselor can bring an unbiased and dispassionate view to discussions about money in the relationship.
• Anyone headed for a divorce should meet with a financial counselor to understand the potential credit-related problems surrounding the household separation and even the divorce decree. Too many divorcees believe creditors are bound by the divorce decree, but they aren’t. If your names are on the account, you are ultimately responsible for making the monthly payment, regardless of what the divorce decree says.
• If you’re getting ready to graduate from college or are a recent college graduate, meeting with a financial counselor can help bust harmful myths about how and when to build your credit.
• The best time to reach out to a financial counselor is now, whether:
  • things seem to be going well financially but you’d like unbiased, third-party insight to continue that progress
  • things are going poorly with your credit, and you’re not sure whom to trust with your questions about rebuilding your rating or cleaning up your history
  • you’re just getting by but you know you have room to improve your credit score
• Typically, consumers tend to reach out to financial counselors in times of crisis, such as:
  • when they’re about to or have already missed a bill payment
  • when they’ve been contacted by a collection agency
  • when they’re facing foreclosure or repossession
  • when they’ve maxed out their credit cards due to medical emergencies or consumer overspending

How long does it typically take to improve credit with a financial counselor?

Depending on the type of issue dragging your credit down, you might see your credit score improve in a matter of a couple weeks or six to nine months. Correcting errors on your credit report can have an almost overnight impact on your rating. Using free products like Experian Boost can improve your credit immediately. Overcoming the negative impacts of years of spending issues and payment histories, though, can take up to a year or more to counter with positive credit-related behaviors.

How do financial counselors differ from advisors and planners?

Unfortunately, the basic term “financial counselor” has no licensing requirements, no copyright or trademark protection, and no exact definition. It has different meanings in different situations. Although a bit oversimplified, financial counselors tend to work with their clients to improve their day-to-day, month-to-month financial behaviors and choices, such as budgeting, credit building, debt elimination, and saving for emergencies and goals. In many cases, anyone can call themselves a financial counselor and not be in violation of any state regulations or licensing standards. That’s one reason I would always recommend you look for a specific type of financial counselor.

Accredited Financial Counselors® (AFC), on the other hand, offer counseling on budgeting, credit building, debt elimination, and consumer behaviors through private practice or through a sponsoring organization, such as a military base, university, or nonprofit. They must have 1,000 hours of experience and pass a rigorous test in order to use the title of AFC. (Disclaimer: I’m an AFC.)

Finally, financial advisors and planners are in the business of offering advice about or selling products to help their clients build wealth long-term. While financial advisors and planners require licenses to recommend and sell securities, insurance, and other financial products, AFCs do not sell or recommend products for commissions.

What are common misconceptions around working with a financial counselor?

One common misconception about working with a financial counselor is they only work with the extremes: the very rich or those in financial need. The truth is that most households would benefit from working with a financial counselor. According to Career Builder, nearly 80% of workers earning less than $100,000 a year live paycheck to paycheck even before the coronavirus pandemic. Plus, the Federal Reserve reports that 2 in 5 American households are unable to come up with $400 in an emergency without affecting their ability to pay their regular bills. Therefore, most American adults could use financial counseling, whether it involves building or rebuilding their credit rating, accelerating their debt elimination plans, or putting barriers in place to stop impulse spending.

Another misconception is that financial counselors charge large fees. Many Accredited Financial Counselors (AFCs) provide their services at no charge through a nonprofit, military base, or other organization. Others have set up their own private practice, giving them greater latitude in the services they provide. Still, their fees are reasonable for the short- and long-term financial benefits they provide.

Many people think meeting with a financial counselor would be too embarrassing or humiliating. But there is no shame in wanting to improve your situation. For example, AFCs are trained to avoid making the consumer feel ashamed of their previous behavior. Shame and embarrassment do not lead to positive changes. AFCs focus on future goals and objectives, not on past mistakes or choices.

Some people believe they have to get super organized with all their financial documents and bills before meeting with a financial counselor. Actually, financial counselors can help simplify the process of organizing household finances by helping to prioritize tasks and by providing recommendations for helpful apps and other tools.