Does Credit Counseling Hurt Your Credit Score?

The idea that credit counseling hurts your credit score is for the most part mistaken. However, some credit counseling programs may cause harm to your credit score while helping you to resolve your debt.

Credit Score

The myth that credit counseling hurts your credit score is a persistent one. "The credit score system ignores any reference to credit counseling that may be in your file," BankRate reports. In other words, your credit score does not know whether you are receiving credit counseling.

Credit Report

Credit counseling may appear on your credit history, however. Some creditors may note on your credit report that your debts are being repaid through a credit management plan. As long as you are current on your monthly payments, this should not affect your credit score, although it can give lenders pause when it comes to opening new accounts.

Considerations

There is, however, one exception to the misconception that credit counseling hurts your credit score. If your creditors settle your debt for less than you owe as part of a debt repayment program, they can report this to credit bureaus, with the amount you are being forgiven reported as a charge-off. This can result in a lower credit score.