Money Talks, So Should You

Q&A: Will credit counseling affect my credit score?

Neerja Bhutani
by Neerja Bhutani, The Garrett Network  (@BhutaniPalmin)

The purpose of seeking consumer credit counseling to get help getting out of difficult financial situation. Credit counseling helps manage your finances in distressed situations does not affect your credit score.

Credit counseling services evaluate your financial situation, debt and financial resources available, and is usually free. The counseling by itself does not get reported on your credit report.

Credit counseling can lead to a Debt Management Program, or DMP, if your credit card debt is huge and you cannot manage your monthly obligations in timely manner. Under this program, the counseling agency might negotiate a reduced interest rate, a waiver for fees and/or penalties, and thereby reduced or partial payments. When you are enrolled into a DMP, all open credit cards accounts will be closed and available credit on those cards will be zero. This will affect your credit score, since there is a close relationship between credit available and credit score.

READ: Get out of debt: Credit counseling

In the short run, your credit score will be negatively impacted, but as your debt balance gets lower, your credit score will increase. If you are not able to meet your debt obligations in a timely manner, you should seek credit counseling and, if necessary, DMP services, and not worry about credit score being affected. In the long run it will improve your financial well being and credit score.


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Neerja Bhutani has been in the financial planning profession since 1997. She co-founded Bhutani-Palmin Financial Planning in 2006 and is an hourly financial planner, providing independent, objective financial planning and advice to clients in Walnut Creek and Oakland, California.