Consumers who run up too much debt might find it necessary to visit a credit counseling agency to discuss their use of credit, their card balances and how they want to handle their debts. If this describes you, understand that credit counseling itself does not hurt your credit.
What is Credit Counseling?
Credit counseling is a session allowing you to discuss your credit and debt situation, develop a balanced budget, identify your financial strengths and weaknesses and develop a plan to improve your credit. The counselor might discuss ways of handling any debt you have, according to the Stop CC Debt website, and help you obtain a free copy of your credit report so you can talk about your accounts and their status.
What Does Hurt Your Credit Score
Out of control credit card debt and its effects on your credit history can cause more harm than visiting a credit counselor, says Stacy Johnson of Money Talks News. If your use of credit cards is out of control, the counselor may recommend that you enter into a debt management plan, where the credit counseling agency interacts with your creditors, much as a middleman would. The credit counseling agency works to develop a payment plan, probably with lowered interest rates and waived fees and penalties, making it easier for you to afford your monthly payments. After your creditors have come to an agreement with the credit counseling agency, you must agree to close any credit accounts you have open and send one monthly payment to the agency, which is then divided between your creditors.
Debt Management Plan
When you enter into a debt management plan, this shows up in your credit history, but should not have a negative impact on your credit score. Johnson of Money Talks News includes a portion from the Fair Isaac website that says using the services of a credit counseling agency doesn't have an impact on your FICO score. Some creditors might view your participation in a debt management plan in a negative light, but overall, it should not hurt your credit score.
Credit Counselor Recommendations
If your credit counselor makes recommendations that affect how you settle your debts, this could have a negative impact; however, settling for less than the full amount on an account or making partial, rather than full, payments will have more of an impact. If you make late payments after you enter a debt management plan, this can affect you negatively, as well.
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