People who are looking for legitimate debt reduction may be concerned about some of the criticisms they have heard about the credit counseling industry. While it is always important to pay attention to the criticisms, consumers must also take it upon themselves to research any credit counseling agency they are considering using as a means of debt reduction rather than relying solely on second-hand information.
Credit counseling agencies first formed in the United States in the 1950s and became very popular by the early 1990s when the criticisms first started. The biggest source of criticism directed at the industry is how they obtain their payments, which is from creditors to whom payments from consumers are distributed.
Creditors pay a fee to the counseling agency to participate, which lead some to form the impression that the creditors and counseling agencies were actually one in the same. Another public criticism was that the agencies were putting creditor needs above the people they served so they did not lose their sources of funding, which has decreased significantly in recent years.
A second major criticism of the consumer credit counseling industry is that entering a Debt Management Plan will actually ruin a consumer’s credit, although this has been directly disputed by FICO, the organization which originally created the credit score. Accounts that are under a DMP will show as such on a consumer credit report, but that is not factored into credit scoring. Rather, it is the amount of debt to income ratio that determines the score.