How Credit Counseling Affect The Credit Score
In the United Kingdom, credit counseling is known as debt counseling. Here, the Financial Conduct Authority is responsible for the regulation of consumer credit. They have established a Debt Management Plan Protocol and can impose fines for improper conduct. Understanding the impact of credit counseling on credit score is necessary. You need to know that participating in credit counseling will never affect your credit score directly. It will never appear on your credit report. By opting for a good credit counseling organization you can avail financial management and budgeting education so that you can keep your credit under control.
Let’s check out at the various elements to find out how debt management plans can influence them-
Debt management program have positive influences on credit scores. You should understand that most people visit the credit counseling agency whenever they are in financial distress. They may have missed payments or some damage may have occurred to their credit. This should not be confused to be the result of a debt management program. Anyone who follows the program carefully can build a history of on-time payments and when they reach a paid in full status it will be rewarding.
The impact of a debt management program is typically highest on this category. The reason is that, as your pay off your debt the amount you owe will keep decreasing. It will gradually lower your debt-to-income ratio and make your profile more appealing to other creditors in future. Paying off all your debt will put you in a very good position in this category.
Length Of Credit History
When you close a credit account, for ten years its age keeps contributing continuously to the overall age of your credit history. Only after ten years it would drop off the report and it will stop counting toward the average. Since debt management program last for three to five years, you will have enough time to build back the history. Once you have completed the program and allowed to open new credit accounts, you can start managing them responsibly and gradually the impact of closing the accounts will decrease.
There will be no indication about credit counseling on your credit report until and unless you have repaid your debt through a debt management plan. Opting for such services will never impact your credit scores in any way. Choosing a debt management plan means that the credit counseling agency will negotiate with your lender for lower interest rates or reduced repayment amounts. It is the payment status if your account that will determine if your credit scores is getting affected or not. Lender will report whether the account has been paid in full. They may also report the account as settled, which means an amount less than what was agreed has been paid. Settling a debt with less than what the original amount was will always have negative impact on your credit score, whether you have took the help of a credit counseling agency to negotiate with the lender or done it by yourself.
During the transition of your debt management plan it is important to ensure that the account payments are kept current. You should also understand when the credit counseling agency starts making the payments on your behalf. You should make sure that not even a single payment is missed between the time when you have entered the plan and the time when the credit counseling agency has started making the payments. At times you may have to make a few payments before the credit counseling agency starts paying.
No matter what, always avoid credit repair firms that claims they will be able to fix your credit at the earliest or willing to get the negative information removed from your credit report for free of charge. Also stay away from organizations that are desperate to enroll you in a debt management plan. A reputed and honest credit counseling agency will first provide you the necessary financial management education and suggest you to enter a debt management plan only if it is required.