How Credit Counseling Affects Your Credit Report Scores

So you’re in credit counseling and you’re wondering what impact this will have on your credit reports.  Seems like a legitimate question, since you’re obviously trying to do the right thing by your creditors.  Unfortunately, there’s no easy answer to this question.

Until recently, the company that compiles information for your credit (FICO) score considered credit counseling as a negative.  However, their research eventually showed that credit and debit counseling actually had zero effect on determining whether an individual was a good credit risk or not.  Subsequently, they removed that from consideration on credit report scores.  

So the short answer to this question is, technically, “NO.”

When Credit Reports Are Affected Negatively

Unfortunately, that still doesn’t mean that you’re guaranteed to get a loan or credit.  Some lenders will see credit counseling as a good thing; to them, it means that you’re behaving responsibly in addressing your debt.  To others, it is a red flag that you’ve taken on too much debt and mishandled your finances.  

Mortgage lenders, in particular, might look at credit counseling as tantamount to a Chapter 13 bankruptcy.  You might get that loan, but it might be at substantially higher interest, as you’re considered a subprime risk.

The other part of this equation is that many credit counseling agencies will not work with you until you are substantially behind on your payments, and collection efforts have begun (which means your credit scores have already taken a beating).  Other less-reputable agencies may not actually send in your payments by their due date once you’ve signed on with them.  That won’t do your credit scores much good either.

So, before getting on board with a credit counseling agency, exhaust any possibilities for working with your creditors.  With a tanked economy, credit card companies and banks are hurting right along with consumers.  

They may be quite willing to work with you on late fees, interest rates and even balances.  It may take some time, and you may need to spend some time on the phone with people other than the usual phone reps, but it’s a step that might well be worthwhile.