Credit counseling, directly, does not affect a credit score. However, some of the practices that are advised to be followed can both raise and lower your credit score depending on the point of the process in which you are involved. Overall, credit counseling is a positive endeavor that can positively impact your credit score in the long run.
Initial Actions Lower Credit Score
One of the initial actions that one is advised to take is to close all open unsecured credit accounts. The purpose behind this is to ensure a participant does not incur additional debt during the repayment process. When you close credit lines, you will find that your score initially falls. This is because credit lines are part of the formula for creating a credit score.
Repayment Can Increase Credit Score
While repayment is a hard commitment to make and keep, one will reap the benefits of reducing debt in the long run. On-time payments in a debt settlement will naturally reflect positively on your credit report and the decrease in debt and overall lines of credit will eventually convey one as a good debtor to work with. However, if one does not discontinue accruing new debt during the process, the process will seem like rowing a boat against the current.
Credit Counseling Notation Is Neutral
Your credit report may reflect the use of a credit counseling agency, but it does not directly impact your score. In fact, it is considered a “neutral notation” to scoring agencies. Fortunately, when one adheres to the debt settlement program, this notation will give creditors confidence that you are responsible and willing to pay for what you borrow. This could look positive in the future once debt has been paid and you are looking to reestablish credit with someone.
Follow Up Will Ensure Accurate Reporting
As with any process that can affect credit reports, and as should be a regular practice, one should review the reports provided by all three bureaus to look for inaccurate information. A credit counselor will know the types of mistakes to look for and strategies for continuing to improve your credit score over time. Changing or removing information on a credit report takes time, so it is important to review every 6 months at a minimum, and within 60 days of completing a debt settlement case.
It is possible that debt settlement through a credit counselor is not the best solution for everyone. One must have the stability to make payments on a regular basis, and always on-time, to avoid further negative reflections on your credit report. Be sure to settle at an interest rate and payment that gives some flexibility for any life events that change your income.