Credit Management

How to Rebuild Your Credit

How Will Credit Counseling Affect My Credit Score?

Many people worry that their credit will be damaged if they enter a debt management program through a credit counseling service. In fact, their credit score may stay the same or actually improve if they successfully stick to the repayment plan. There are several reasons for this:

• Fair Isaac Co., creator of the widely used FICO scores, does not consider the fact that a consumer is in a counseling program when calculating a credit score.
• Many creditors will not report anything to the credit bureaus that indicates that an account is being repaid through a counseling agency.
• Some creditors will "re-age" accounts that are behind when a consumer enters a counseling program and sticks with it for several months.That means the late payments immediately prior to beginning the counseling program may be removed.
• By entering a credit counseling program you may avoid further late payments, credit problems and even bankruptcy - all of which can significantly hurt your credit.
• If you successfully pay down your debt through a counseling program, your credit score can improve since the amount of debt you carry is one of the major factors in calculating a credit score.

Warning: While you are paying your debts through a counseling agency, you still remain legally liable to the creditor for those payments. If the counseing agency pays creditors late, or doesn't pay them at all, your credit report will suffer. Choose a reputable counseling agency with a track record of paying creditors on time.

Credit Repair Firms

Think twice before spending your money on a credit repair program. Many times these programs cost hundreds of dollars and their techniques may actually be illegal! For example, some companies will tell consumers to get an Employer Identification Number (EIN), which is the same number of digits as a Social Security Number. They'll then tell consumers to try to get new credit using that number. The goal is to establish a brand new credit file. Obtaining an EIN for that reason, however, is not legal.