Debt Management and Your Credit Score

Does Credit Counseling Hurt My Credit Score?

We are frequently asked by clients and the general public, about the impact of enrolling in a Debt Management Program (DMP) on an individual's credit report and score. This is certainly a valid concern, but it is often fueled by myths and misinformation.

The primary objective of a DMP is to assist clients who are already experiencing difficulty managing their creditor obligations and other expenses. This creates a situation where they may already have a credit score that has already been negatively impacted by late payments and collection accounts. That being said, those factors will continue to impact the overall score even after someone is well established into a repayment plan. The good news is that the significance of these factors will diminish over time as long as payments are made consistently as agreed while they are enrolled. Maintaining on-time payments will increasingly offset prior negative credit history over time usually within 24 months.

While enrolled in a DMP, creditors may report that the account is being managed by a credit counseling program. This has led to some misinformation that, somehow, this can impact a credit score negatively. Let's put this myth to rest with the following explanation directly from the FICO (the company that created and maintains the formula for determining credit scores) website. "Using a credit counseling service and having this situation reported in your credit report should not have any negative impact to your FICO® score." The rest of the FICO explanation can be found at myfico.com on their Support Center website.

Maintaining a good credit rating is a reward solely for consumers who pay back their lenders responsibly. A diminished credit score is not a punishment; it is a reflection of the consumer’s diminished ability to repay. Clearly, when a consumer cannot payback what they have already borrowed, the credit score should be the least of their worries. "You need to do what you need to do to get your finances back in order and don't worry about your credit score," says Maxine Sweet, VP for Public Education at Experian.

Using the service available at annualcreditreport.com is an easy and free way to monitor your credit history with each of the three credit reporting agencies on an annual basis. Recovering from a damaged credit history is not a fast process. Success takes time measured in years and effort measured in timely regular payments. Using a DMP helps by providing the knowledge and experience of Certified Credit Counselors and the benefit of reduced interest rates and lower payments which, in most cases, substantially reduce the amount of time and money one would have to pay in order to be debt-free.

For immediate assistance, please call 1-800-351-4195 to speak with a Certified Financial Counselor and get the help you need to solve your debt problems today.