Credit Counseling Hurt My Credit!

If you've found yourself saying, "Credit Counseling hurt my credit!" - you're not alone.  Keep in mind that talking to and/or getting advice from a credit counseling agency is normally free and has no effect on your credit history whatsoever. However, if your credit card debt is out of control, it’s likely that you’ll end up on what’s called a Debt Management Program (DMP). These programs are at the heart of the credit counseling industry. 

What they involve is having the agency get between you and your creditors to help create a payback plan; one that often includes reduced interest rates, waived penalties and fees, and monthly payments you can afford. 

Once this deal has been worked out, you agree to close any open credit accounts and thereafter send one monthly payment to the counseling agency, which they divide between your creditors. These plans typically last 4-5 years.

What does this all mean? Merely talking to a credit counselor doesn't impact your credit; a DMP, however, does show up in your credit history.

Here’s a cut-and-paste from the website of the company that’s responsible for most credit scores, Fair Isaac:

Using a credit counseling service and having this situation reported in your credit report should not have any negative impact to your FICO® score. However, the actions you take based on the recommendations of a credit counselor may sometimes affect your score. For example, choosing to make partial payments or agreeing to settle for less than the full amount on accounts may be regarded negatively by the FICO® scoring model. Additionally, any late payments occurring either before or after you began the plan may also be regarded negatively.

Bottom line? Enrolling in a Debt Management Plan (DMP) through a credit counseling agency will show up in your credit history, which may have negative implications to some creditors. 

Two other heavily advertised methods of dealing with debt, however, will have a much greater negative impact on your credit history and score. Bankruptcy and debt settlement often involve not repaying the entire debt.  And that’s something that will always negatively impact on your credit score. But, if you're in a situation where your credit is already in the pits, these alternatives may be your best debt elimination plan.

Additonal Information

Looking for debt relief? Check out Curadebt.

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