what is the effect of debt consolidation on my credit score?

Answer 1

Debt consolidation seems to be a mystery to many people. You hear both negative and positive responses whenever somebody brings up this topic. As a former financial counselor, I had to learn the in's and outs of debt management in order to become certified by debt management accreditation, so I can answer this from experience.

According to FICO, "using a credit counseling service and having this situation reported in your credit report should not have any negative impact to your FICO score. However, the actions you take based on the recommendations of a credit counselor may sometimes affect your score. For example, choosing to make partial payments or agreeing to settle for less than the full amount on accounts may be regarded negatively by the FICO scoring model. Additionally, any late payments occurring either before or after you began the plan may also be regarded negatively."

In fact, I know firsthand the effects, because I am currently on a DMP. Over the course of 18 months I have raised my credit score from 696 to 729 because I am reducing my debt to income ratio efficiently. My score wasn't bad to begin with, and I wasn't really burdened by late payments. I mainly joined in order to be able to have my interest rates reduced dramatically in order to pay down my high interest debts. Many people will tell you that credit counseling won't do anything you can't do for yourself. This is actually quite the contrary. If you were to contact the creditors on your own, to negotiate a reduction of interest, they may reduce it by 3-4%, while credit counseling could reduce it by as much as 20% depending on how high your interest is to begin.

Also as far as the information regarding credit counseling being equivalent to bankruptcy, this is actually quite inaccurate. While new bankruptcy laws have required most bankruptcy filers to attempt credit counseling prior to declaring, credit counseling is a status that creditors place on your accounts while you are on a DMP program. Yes this will affect your ability to obtain new credit, but while on the program, you shouldn't be trying to get new debt anyways! That defeats the purpose of the program. But this status is something that the creditors remove upon completion of the program or upon you leaving the program. Bankruptcy on the other hand, is negative information that could remain on your credit report for up to 10 years depending on the state that you reside in.

So I hope this sheds a little more light on how debt management may affect your credit score. As I said, I've had a positive experience in large part due to the fact that I worked at a company and am certified. But if you have any additional questions, you could always contact the company I used to work for. The financial counselors are super friendly and could answer any of your questions without pressuring you to join. It's a great resource to have. There website is http://www.incharge.org . It is based in Orlando and has a great relationship with the Defense Department, who regularly refers its soldiers to the company for financial counseling. If you are interested in speaking with counselors at the company I have an account with, it is http://www.careonecredit.org/ . Both of these companies are registered with the BBB and have outstanding reputations. Good luck with everything.

Answer 2

I did this and all of the accounts in the debt consolidation are considered negative. Even though I am paying them!

Answer 3

At first it will have a negative effect. If you continue to make a good faith effort, and payoff your debt, it will help your credit, in the long run and overall. Its not necessarily a negative.

You have to be patient, unfortunately it take a long time to build back your credit, but to ruin it, it only takes a few months...Good luck

Answer 4

future lenders will look at it as a chapter 13 bankruptcy-- So go file the 13 instead. Once you are out all lenders will look at the file date not the discharge date. The bk 13 will stop the revolving interest at that date and you will only have to pay off the balance. CCS will let every thing go into charge off status before they send in 1 dime. And they charge you to disperse your$$$$.

Answer 5

It depands on how you consolidat. if you go through a C.C.C, It is viewed as A ch 13 BK. however if you refinance and pay off the debt, your score will go up.

Answer 6

There is a lot of good info on this subject right here.

Answer 7

it may make your credit score lower.

Answer 8

Bad.