How Does Credit Counselling Affect Your Credit ?
You’ve decided that credit counselling is your best option to get out of debt without claiming bankruptcy, but now you’re wondering, ‘How does credit counselling affect your credit?’
The answer is, it won’t! Enrolling in a credit counselling program such as a Debt Management Plan (DMP) will not affect your credit score. It will, however, affect the likelihood of you receiving additional credit in the near future.
Once you enter a credit counselling program, a comment (R7) will be added to your credit report. This note means that you are making regular payments through special arrangements to repay your debts. It will stay on your report for two to three years after the completion of the program and will make it more difficult to qualify for new credit while you’re still in the
Before you deem this a negative side effect, consider the positive ramifications. If you’re already feeling the need to enter a credit counselling program, the fact that it will make it harder for you to acquire new debts that you can’t afford is a good thing. Plus, if you’re already behind on your payments, this note won’t make a huge difference on your report and will actually prevent it from getting worse! There is usually a clause in the contract that states if you acquire new debt during the period of your program, the company has every right to terminate your file and you will be left tackling your debt on your own again.
If you were hoping to enter one of these programs without expecting any future creditors to find out, it’s not possible. If this was something you were concerned about, credit counselling is a far better option for you than bankruptcy. Even with the R7 comment on your file, bankruptcy on your credit report is a much larger red flag for these potential creditors and remains there for at least seven years as opposed to two or three.
Keep in mind that if you have any further questions about credit counselling or the program you’re looking to enter in to, it’s always best to contact the company you’re looking to work with. Speaking with a credit counsellor is free, but the assistance to jump-start your debt-free future is priceless.