Financial Tips

How Will Debt Management Affect My Credit Score?

Clients often ask the debt counseling professionals at Credit Counselors about the impact of a debt management program on their credit score. It's an understandable concern, but it's important to keep that concern in perspective.

The key point to remember is that if you are entering a debt management program, it's because you're having difficulty managing your bills. Thus, your credit score may already have felt the negative effects of late or missing payments, collection actions, etc.

Your credit report, and credit score, will continue to show those effects for some time after you've begun a debt management program and payment plan. A debt management program is a good move toward resolving such issues, but it doesn't make them magically disappear. Depending on your circumstances, rebuilding your finances and your credit can be a long process requiring patience and determination.

Then, you might ask, what difference does a debt management program make? It's simply this: It's the first step forward on your road back to a sound financial footing, and each additional step is progress. You'll find that your previous mistakes will gradually fade from your credit report. The better you stick to the plan and make payments on time, the sooner you'll start to see the results.

When you enroll in a debt management program, your creditors may report this to the credit agencies. What effect will this have on your credit score? Consider this statement from the FICO website: "Using a credit counseling service and having this situation reported in your credit report should not have any negative impact to your FICO® score." You can learn more from myfico.com. As the institution which created and still maintains the formula for determining credit scores, FICO is the authority on such questions.

The best method to address issues with your credit score and credit report while enrolled in a debt management plan is the same one you should employ all the time: Monitor your credit report. Use annualcreditreport.com to review and keep tabs on your credit files with all three credit reporting agencies annually. It's free!

Restoring your financial health is not quick. It could take years, and you will need to be disciplined and patient. However, by setting up your personal debt management program with the help of certified financial experts at Credit Counselors, you'll sleep better knowing you've taken the first step toward becoming debt-free.