Can Debt Counseling Hurt My Credit Score?

Many people looking for credit help wonder if signing up for debt counseling will negatively affect their credit score. The answer to that is absolutely no! Online credit counseling agencies act as a mediator between the individuals and their debtors.

When you contact a debt counseling agency to help you with your credit card debt this doesn’t affect your credit score at all. Most debt counselors don’t report to the credit reporting agencies when you sign up for a debt-management program.

When the FICO score was introduced in 1989 it was administered through the debt counseling agencies. At that time contacting a credit counselor would drop your score one or two points. That rule was changed in 1998 in response to consumers concerns.

The creditor may report if the debt is being repaid through a reduced payment program. However this should be a minor concern if you are in over your head in credit card debt and need help to lower your payments.

I went through a personal bankruptcy in 1989 and I said to the bankruptcy attorney that I was concerned it would further impact my credit rating. His response was, “Son, it’s already in the toilet. Let’s clear things up so you have some breathing room.” And he was right and contacting a debt counseling agency will do the same for you.

If your creditor reports “that the debt was not paid as agreed” that could temporarily lower your score. However the effect will be minimal in the overall scheme of things because it will help you get out of debt. Trust us! A ding on your credit stating it was “not paid as agreed” vs. “charge-off” (never paid at all) is much better! The most important thing – is that you don’t miss any of these payments under the debt counseling program.

Even if you are making reduced payments the credit bureaus will usually look at whether the payments are made on-time and compare your outstanding balance versus the credit limit. So as the balance goes down, your score will come up!