Does Credit Counseling Hurt my Credit?

You will likely get a vast multitude of responses to this question, depending on who you ask. The short answer is no, it will not hurt your credit. This is how it works:

Credit counseling is a session that allows you to balance your budget, identify financial strengths and weaknesses and develop a plan for improving your credit. It may include strategies for dealing with debt as well

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An accredited credit counselor can show you different options depending on your situation for getting your financial situation on the right track. They will make recommendations so that you can make a decision on any changes that will benefit you. This can include helping you pull your own free credit report and discussing the items listed within it.

If you find that you are deeply in debt with finances spiraling out of control, a credit counselor may recommend a debt management plan. They can often tailor a plan to meet creditor requirements while also fitting within your budget. A debt management plan can frequently help you reduce interest, lower your monthly payments and re-age your accounts so that they show current. Late and over-the-limit fees can be a thing of the past.

If you would benefit from a debt management plan, you likely have several negative factors that have hurt your credit score. High debt loads can drag down your score. Late payments and breached credit limits can also drop your score substantially. A debt management plan can help you correct these negative factors while helping you eliminate credit card debt.

There once was a time in the late 1990s when your credit score would drop because you enrolled in a debt management plan. Some old school mortgage brokers still believe this is the case! Fair Isaac Corporation examined the impact of debt management plans as part of their credit scoring model. They found that consumers enrolled in a debt management plan were no more likely to default on their debts than those not enrolled. That is a pretty good indication of how effective a debt management plan can be.

As a result of the Fair Isaac study, credit score calculations have ignored participation in a debt management plan. What will change your credit score is a reduction in your balances, a current payment status and a consistent payment history. Your accounts will be inactive during a debt management plan, so if you do not really need a debt management plan, you should try to repay debt on your own. A credit counselor can help you with strategies to eliminate debt and reduce interest rates on your own.

For more information, visit our web log. Find out what Fair Isaac Corp, the Federal Housing Administration and the US Department of Housing and Urban Development say about participation in debt management plans.

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