Do Consumer Credit Counseling Services (CCCS) affect your credit negatively?
It depends on what you mean by "credit"---are you referring to your credit score or how your credit report is viewed by lenders? Also, in order to gauge what consequences it would have for you we would need to know more about your individual circumstances. For example, what debts will not be included in your program? Who are your creditors (each creditor has a unique policy about how they report credit counseling programs to the credit bureaus)? Finally, we would need to learn whether you are thinking about enrolling in a CCCS sponsored debt management plan (DMP) or just considering a consultation for some budgeting help.
I am planning on just getting a consultation for budgeting help and to get some advice about whether a DMP is a suitable solution for my debt problem. Will this affect my credit adversely?
No. Seeking help from a credit counselor for this type of a visit is not reported to the credit bureaus or even your creditors.
What about if I enroll in the debt management plan?
Again, this depends on whether you are referring to your credit score or your credit report.
How could a debt management program affect my credit score and credit report differently from each other? After all, your credit rating is supposed to be a reflection of what's being reported to the credit bureaus.
In most cases this is exactly true, but it's a bit different with credit counseling. The major credit scoring agency, Fair Isaac Corporation (FICO), has issued a number of statements promising that they do not factor enrollment in a debt counseling service when calculating their scores. However, enrollment in a DMP is listed and reported on your credit information, which many lenders consider the equivalent to Chapter 13 Bankruptcy in terms of the credit impact.
Why do some lenders and banks consider the outcome to be on par with a Chapter 13 Bankruptcy?
In their eyes, both have the same underlying goal and purpose: to restructure a consumer's debt and adjust the payment terms to make satisfaction of the debt more readily achieved. To these lenders and for better or worse, anyone who needs third-party help to deal with their debt is not creditworthy. Others consider credit counseling to be far more favorable. After all, the debt is satisfied and the accounts are not "charged off".
How do different credit card companies report debts enrolled in a DMP?
It is impossible to account for each bank's policy, but the vast majority will inform the credit reporting agencies that the debt is enrolled in a DMP. Other creditors report the debt as delinquent until the consumer has made three consecutive monthly payments, some will wait until the entire debt is satisfied. This also depends on how well the credit counselors you are working with disburse your monthly payments. If they are past due, the credit cards will punish you not them, and it could leave you with black marks on your credit report.
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