Does Debt Counseling Affect Your Credit Rating?
A questions that is most frequently asked by people who wish to make use of debt counseling or negotiation services is, "will using these services affect my credit rating negatively?"
Ironically, most of these individuals (who are already having debt problems) want to know whether using a debt counseling
service will affect their ability to get more credit in the future!
If you are drowning in thousands of dollars worth of debt at an interest rate of 20% or more and a pre-tax income of only $ 100 000 - can you afford more credit? It could take years to pay off such severe debt and you will never do it if you keep spending on your credit cards! Debt counseling is aimed at preserving your financial affairs and this means your good credit too.
According to experts, debt counseling does not permanently effect your credit SCORE. In most cases your score may not change at all. What is DOES do is make it difficult to get any MORE revolving credit while enrolled in a debt settlement program.
Any impacts on your credit score or your ability to access more credit are a good thing when you are not even able to cover the debts you have. In fact, being enrolled in a debt counseling program can actually make it easer to get credit in the future. This is of course after your original debts have been paid. Sometimes if a client has been in a program for a year or two they are able to get home loan approval or second mortgages.
Most people with chronic debt problems have a spending problem. Not having access to any credit while undergoing debt counseling is a good way of helping these individuals to stop spending uncontrollably. The majority of companies will allow such individuals to retain some forms of credit such as those used for business or travel.
In a debt counseling program you will be required to give a monthly check to your counseling agency which is then used to pay your creditors. Such plans may last for as long as three or four years and for all of this time you will be prevented from getting any more credit.
It is vitally important that you find a reputable debt counseling program. If your agency is late on your payments or fails to pay your creditors this will indeed affect your credit rating! You really must make sure that you can trust the company you sign with to do what is in your best interests! The next step is taking responsibility for your own financial future and never getting in over your head again!
