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In the ongoing discussion of credit scores, it a common belief that credit counseling does not impact the consumer credit score. In fact, some credit counseling companies make the claim that their services do not affect your “Fico Score.” This is normally not an accurate claim. If you had available credit on your accounts, when you enroll in credit counseling, all of your accounts are closed by the creditors. This leaves you with “no available credit” on those accounts and reduces your credit score. Having maxed out credit cards can also be detrimental to your credit profile. The NFCC states “A DMP [Debt Management Plan] could have a negative impact on a credit worthiness decision by a potential creditor, landlord, or employer because it is an indicator that you are or have experienced financial difficulties. In addition, creditors may report that you are on a DMP and are not paying as originally agreed although they have accepted the reduced payment.” In other words, if you ask an auto dealer or mortgage company, they may tell you they consider credit counseling similar to a bankruptcy. Please visit the following links for more information: National Foundation for Credit Counseling
This is a question that I hear nearly every day. The financial industry has done an excellent job of drilling the importance of the FICO score into the American psyche. It is an important number, if you want to be in debt. Credit Scores can be re-built. It is sad that many people have no savings, no investments and very little money left over at the end of the month because they are concerned with only their credit scores. I see people struggle to barely make the minimum payments just to keep a credit score. Credit scores can be rebuilt but the damage to a family and lost money thrown away to high interest cannot. Most of us learned in school that if we invested $1000 a month combined with the power of compound interest, most people could easily retire a millionaire. Many elderly people have contacted us with stories how they struggled to pay debt most of their lives and retired below the poverty line. Credit scores will not help you retire, what you do with your money today will. We will be writing on this topic in depth in future posts. It’s important to understand that the credit score, while important, is not always the most important number in your financial profile.
One of the most common questions we get is how debt settlement will impact a credit score. Normally, by the time a client reaches the point of calling for debt settlement help, their credit has already been or is about to be impacted.
If you are current on all of your payments, debt settlement will negatively affect your credit score. With that said, if you can afford to pay off your debt in full on your own, you should do so. There are non hardship programs available that can help you get your spending under control. It is important to note that even if you are current with your payments but your credit cards are maxed out, your credit score profile can be negatively impacted. If you are struggling, are already behind in your credit card payments or feel you may be in the near future, your first goal should be to get out of debt then rebuild your credit profile. As you move through the debt settlement program, each time a debt is settled, the creditor is required to report a 0 balance owing on the credit report. Every credit situation is unique. We cannot predict or make any promises regarding your individual credit outcome after debt negotiation. Please visit the following links for more information: |
