Does It Affect Your Credit Score to Use a Debt Counselor?

Although people who go to a credit counselor often have bad credit, going through credit counseling does not affect your credit rating, and may help you improve your credit. The key to making credit counseling benefit your financial situation is to begin as early as possible. People often get nothing out of counseling because their situations are beyond repair.

Identification

Credit counseling affected consumer credit scores until the late 1980s, but as of 2011, the FICO scoring system does not factor credit counseling into a credit rating, according to Kimberly Lankford of "Kiplinger's Personal Finance." The credit reporting bureaus changed their opinions on credit counseling because many consumers go to credit counseling to prevent problems before they occur.

Benefits

If credit counseling helps you improve your financial management skills, your credit score should see a boost from on-time payments and lower debt levels. One-third of consumers who go to a credit counselor never need to go back after a single session, according to Liz Weston of MSN Money Central. A credit counselor may even negotiate with your creditors to lower your interest rates or settle some of your debts.

Considerations

There is a good chance that you're considering going to a credit counselor because you have poor credit. Some actions suggested by a credit counselor may damage your credit, even if they're better alternatives to constantly missing payments or ignoring debt. For instance, settling accounts for less than the full balance takes between 45 and 65 points off of a credit score of 680, according to Ellene Cannon of Bankrate.com.

Tip

Ideally, you want to go to a credit counselor well before you start missing payments, or your debts become unmanageable. If a credit counselor suggests a debt management plan, weigh the possible damage to your credit rating versus missed payments and delinquencies. Creditors may report an account as in a debt management plan, which appears as a notation on your credit report. Lenders may see a notation of debt management as a bad or good thing. In general, creditors would rather see someone make on-time payments to a settled account, rather than defaulting.