Looking for help but worried it might impact your credit score? Don't worry, from budgeting advice to a free consultation and financial education, none of it shows up on your credit report. Just be sure to seek help from a certified nonprofit credit counseling agency, which is required to offer free services that help people build a better path to financial wellness.
That said, before going any further, it's worth understanding whether any specific services can impact your credit score, either negatively or positively.
A Debt Management Plan (DMP)
If you’re feeling overwhelmed by your debt and need help paying back your lenders, a credit counselor may recommend enrolling in a debt management plan (DMP). When you enroll, your counselor will talk to your lenders and work with them to reduce your interest rate and consolidate your loans into one streamlined monthly payment.
Although this can help you recover your financial wellness in the long run, it's important to understand how it might affect your credit score in the short term.
A DMP's Short-Term Effect on Your Credit
Because a DMP is designed to help you pay down your debt, you'll usually be required to close the credit cards you're paying off through the program. While this is good for your long-term financial health, closing those lines of credit reduces your total available credit, which can raise your credit utilization ratio (the percentage of available credit you're using). Since having more unused, available credit is good for your score, closing accounts can cause a temporary dip until your balances drop and your overall credit profile improves.
A DMP’s Long-Term Effect on Your Credit Score
It's important to remember that missed or late payments will impact your credit score far more negatively than enrolling in a DMP. As you consistently pay back your debt on time, your credit score will rise. Your credit utilization will also go down, reflecting more available, unused credit, which ultimately has a positive impact on your score.
Ready to Meet With a Credit Counselor?
As a member of the NFCC, the nation's oldest and largest nonprofit organization providing credit counseling, debt consolidation, and financial education, CCCS of Chattanooga is a local, trusted resource for financial guidance.
Bottom Line
Meeting with a credit counselor will have no impact on your credit score, which includes budgeting advice and financial education. While enrolling in a DMP may have a temporary negative impact on your credit score, consistent repayment will ultimately boost your score, allowing you to navigate your way out of debt into a more financially healthy future.