When you get frustrated managing your debts, you naturally look out for some help. There are many reputed credit counseling agencies around. However there are fears in your mind about approaching them. How will that be taken in your credit report? Will it affect your credit score?
Let me tell you the truth – If you participate in credit counseling, it will not affect your credit score directly. Before approaching to such an agency, there may be some delinquencies on your account which will remain on your credit report anyway.
Credit counseling agency can provide you some education on financial management and budgeting and that can help you to control your credit and reduce your debt. Such agency will not report your participation anywhere. Even the creators of credit score have confirmed this fact.
As the agency starts working for you, it may suggest you to join its debt management program. Under such program, it can request your creditors to accept less than whatever is due to them. The creditors may or may not accept such request. But if any creditor accepts to settle for less, he has right to make a note about it on your file. This note will stay on your file up to seven years.
Even if this note remains on your file, it will not lower your credit score. However, if you miss out a payment thereafter, it will certainly bring down your credit score.
Enrollment in a debt management program will create problems for you in getting any further credit. However, it is not as bad as bankruptcy. If you are trying to settle your dues by making an honest effort, it will still be regarded as a better alternative than bankruptcy.
One last thing to remember – When you approach to a credit counseling agency, you should verify its reputation and credentials before you participate in any of its programs. You should avoid the agencies promising tall things like fixing your credit overnight or removing all negative information from your credit report for a big fee. A dishonest agency may charge you fees and then take money from you for clearing your debts and may not pay to the creditors on time. In such a situation you will start sinking into defaults and then you will be dragged to bankruptcy. It is very important to check the credentials of any agency beforehand.