How will Credit Counseling Affect my Credit Report?

This is on of the most commonly asked question. Let’s start with the basics. A credit report is your “financial history.” What might be referred to, as a credit “rating” is a credit score. This is a complex calculation, which helps the creditor understand your likelihood to repay a debt. It is a picture of how you have paid back the creditors that you borrowed money from as well as how you have met other financial obligations. All three major credit-reporting agencies use FICO (Fair Isaac and Co.) scoring in making credit decisions. Creditors decide whether to grant credit, provide a credit card or loan based on their own criteria and the history they see on the report. Fair Isaac and Co. is the creator of the FICO score, which is used to determine a person’s credit risk. The FICO score is composed of the following:

· Your payment history.

· Length of credit history.

· How new is your credit and are you taking on more?

· Your total credit limits to see how much credit you could get if you charged all your accounts up and took off with the money.

· What types of credit do you have and is it a healthy mix?

So, how does credit counseling affect your credit? According to Barry Paperno, of Fair Isaac Customer Care - “Using a credit counseling service and having this situation reported on your credit report does not have a negative impact to your FICO ® scores. However, the actions you take based on the recommendations of a credit counseling service may, in some cases, affect your score. For example, an agreement to settle for less than the full amount due on an account may be regarded negatively, as well as any late payments reported either before or after you begin the plan.” For more information about FICO scores refer to http://myfico.com

In summary, when in credit counseling if your credit is good, it will remain good. If your credit is damaged you will be on your way to rebuilding it. In addition, when enrolled in a debt management plan you will be getting out of debt approximately 3 times faster than people who try to do it on their own. Reason being is credit counseling companies negotiate directly with creditors’ lower interest rates that are passed to the consumer. Now more of your money is going towards the principle rather than to finance charges.