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Home / Credit / How Does Credit Counseling Affect Your Credit?


Credit counseling usually consists of two stages: advice and action. During the advice stage, credit counseling will not affect your credit; however, during the action phase, the plan that you enact will mostly likely lower your credit score quite significantly.

Advice vs. Action

During the advice stage, the credit counselor will be gathering your debt information such as balances, who the debt is owed to, monthly payments, interest rates, etc. This information will come directly from you and you will be encouraged to continue to make full payments on all of your debts. As long as you are able to make those payments, your credit will not be affected in any way. After the counselor has looked over your information, they will formulate a debt reduction plan, moving into the action phase.

The debt reduction plan will mostly likely include contacting your creditors to settle debts for lower amounts, asking to move to interest only payments, or bankruptcy recommendations. All of these will cause your creditors to post a negative mark on your credit report, saying you are enrolled in a debt reduction/management plan or counseling, lowering your credit score somewhat. Your credit score will continue to drop for as long as these marks are posted to your credit report and, to a lesser degree, for seven years after your first missed full payment.

Your Options

Credit counseling is not for everyone. It is only appropriate for people who are going to be able to meet the payments laid out in the debt reduction plan. If the plan seems unaffordable or stretches your available cash too far, you will eventually stop making the payments. This will lead to total default or bankruptcy. With that in mind, it may make more sense to move straight to a bankruptcy filing.

Bankruptcy will affect your credit score for up to ten years. The immediate impact can be devastating if you have good credit or negligible if you already have bad credit. The good news is that the effect on your credit score will diminish with time. Each year, the filing will lower your score less and less. Additionally, you will stop making payments on the debts included in the filing. With that in mind, you may want to look at the debt plan the credit counselor offers to see if it benefits you more than bankruptcy.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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  1. Jerry,

    I’m sorry, but you’ve got some slightly incorrect information in this post.

    TRUE Credit Counseling (National Foundation for Credit Counseling member agency) will not negatively affect your credit UNLESS you go 30+ days past due when you are setting up your repayment plan or miss payments while in your repayment plan.

    A true credit counseling agency will not offer to settle or reduce your payments, but will in fact negotiate to get the interest lowered and the late/overlimit fees stopped.

    Any credit counseling agency that looks to settle the debt, rather than pay it in full is not living up to its name. If someone is looking for credit counseling they should first turn to the National Foundation for Credit Counseling (

    I used to work for an NFCC member agency and worked, in part, as their Community Educator. If you have any questions, I strongly urge you to check out the NFCC website and get a better understanding of what they do directly from the governing agency.

    Kate recently posted…Start Small, Start Now–Another Spin on the “52 Week Money Challenge”My Profile

  2. One caveat…when all the accounts are closed, as is a requirement of the debt repayment plan, the score will go down, but that will be absorbed in a few months…and truly, no one should be looking for credit while in a debt repayment plan with a credit counseling agency because the point is to get out of debt, not find ways to add more.
    Kate recently posted…Start Small, Start Now–Another Spin on the “52 Week Money Challenge”My Profile

  3. I’ve seen some relatives go through bankruptcy, and now they seem to be doing fine, but that’s just on the surface. I’d make it my last option.

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