Does Credit Counseling Hurt my Credit?
You will likely get a vast multitude of
responses to this question, depending on who you ask. The short
answer is no, it will not hurt your credit. This is how it
works:
Credit counseling is a session that allows
you to balance your budget, identify financial strengths and
weaknesses and develop a plan for improving your credit. It may
include strategies for dealing with debt as well.
An accredited credit counselor can show you
different options depending on your situation for getting your
financial situation on the right track. They will make
recommendations so that you can make a decision on any changes
that will benefit you. This can include helping you pull your
own free credit report and discussing the items listed within
it.
If you find that you are deeply in debt
with finances spiraling out of control, a credit counselor may
recommend a debt management plan. They can often tailor a plan
to meet creditor requirements while also fitting within your
budget. A debt management plan can frequently help you reduce
interest, lower your monthly payments and re-age your accounts
so that they show current. Late and over-the-limit fees can be a
thing of the past.
If you would benefit from a debt management
plan, you likely have several negative factors that have hurt
your credit score. High debt loads can drag down your score.
Late payments and breached credit limits can also drop your
score substantially. A debt management plan can help you correct
these negative factors while helping you eliminate credit card
debt.
There once was a time in the late 1990s
when your credit score would drop because you enrolled in a debt
management plan. Some old school mortgage brokers still believe
this is the case! Fair Isaac Corporation examined the impact of
debt management plans as part of their credit scoring model.
They found that consumers enrolled in a debt management plan
were no more likely to default on their debts than those not
enrolled. That is a pretty good indication of how effective a
debt management plan can be.
As a result of the Fair Isaac study, credit
score calculations have ignored participation in a debt
management plan. What will change your credit score is a
reduction in your balances, a current payment status and a
consistent payment history. Your accounts will be inactive
during a debt management plan, so if you do not really need a
debt management plan, you should try to repay debt on your own.
A credit counselor can help you with strategies to eliminate
debt and reduce interest rates on your own.
For more information, visit our web log. Find out what Fair
Isaac Corp, the Federal Housing Administration and the US
Department of Housing and Urban Development say about
participation in debt management plans.
© 2004-2010 Vision Credit Education, Inc. All rights reserved.
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