How does credit counseling affect my credit scores?
The NFCC often receives questions from readers about their money challenges. We answer common questions in our Ask an Expert series to help readers find the information they need.
Question: How does credit counseling affect my credit scores?
Answer: Dear Reader,
I applaud you for recognizing the importance of having healthy credit scores. A healthy credit rating can help you secure a home loan, qualify for auto financing and get the lowest rates available on credit cards.
Fortunately, our NFCC-certified credit counselors are here to help you achieve your financial goals, and that includes improving your credit.
How do credit counselors help you improve your credit scores? First of all, it’s important to know that simply talking to a counselor about your financial situation will not impact your credit rating at all. If you choose to schedule an appointment with one of our counselors, you can expect to receive expert input and tips on how to improve your credit.
During an appointment, your counselor can provide you with the following services:
- Reading your credit reports and offering personalized tips for improving your scores.
- Reviewing all of your expenses and income to help you create a budget.
- Providing resources and support for managing and paying off debt.
- Advising you on how to qualify for mortgages, car loans and other financing.
- Answering questions about credit scores, debt and other aspects of money management.
Many people have concerns about how specific actions will impact their credit scores. For example, you may have heard the myth that pulling your own credit reports can hurt your scores.
However, you can rest assured knowing that when a credit counselor pulls your credit reports on your behalf, it is considered a soft credit pull and there is no impact on your scores. When a counselor reviews your credit reports, they will also offer expert advice on how to gain points.
Furthermore, you can ask your credit counselor to help you come up with strategies for repaying your debt. As you pay down what you owe, you can expect to see your credit scores improve.
How do Debt Management Plans impact your credit?
A special option that only credit counselors can offer is enrolling you in a Debt Management Plan (DMP). For those who qualify, a DMP gives you a way to repay your debt in full. Typically, credit counseling agencies can also work with your creditors to negotiate lower interest rates, reduce or eliminate certain fees, and, in some cases, reduce your monthly payments.
If you decide to enroll in a DMP, you can expect a direct impact on your credit reports and scores. In the short term, you may see a bit of a drop in points. This is due to the fact that you will likely have to close your credit card accounts. However, it’s worth noting that alternatives such as debt settlement and bankruptcy are much worse for your credit.
Over time, you will likely see a significant improvement in your credit. Evidence from one of our member agencies shows that clients in their first three years on a DMP see their credit scores increase by 106 points on average. Once your debts are fully paid off, you can expect to see another increase in your credit scores.
In short: Recovering from credit card debt can take time, but a DMP is a safe and effective way to reduce debt and improve your credit scores.
Credit counselors work to help you improve your credit scores
The most important thing to remember is that a credit counseling session is an opportunity to get financial advice and recommendations from a trusted expert. During your session, your counselor should help you better understand how your credit works, and answer any questions you have.
If you’re ready to get on the right track, schedule an appointment with an NFCC-certified credit counselor today. You have nothing to lose and a lot to gain!
Sincerely,
Bruce McClary
Bruce McClary is Senior Vice President of Memberships & Communications at the National Foundation for Credit Counseling.
