Does Joining A Debt Management Plan Hurt Your Credit?

One of the most frequent questions my colleagues and I receive is how does joining a debt management plan affect one’s credit.  Joining a credit counseling program is viewed as a neutral mark according to Fair Isaac and Company, the creators of the FICO scoring model. Therefore, your score should not continue to be impacted by using such a service. However, due to the fact that accounts are closed at the time you join the program, it will cause an initial dip in your credit score. It is true that a lender may interpret your participation negatively, but a counseling service can’t predict the way lenders will look at the neutral notation. Some may feel that you’ve taken control of your finances and are dealing with the situation, while others may take a different view. We don’t presume to say what those interpretations will be, since it depends on the lender.

Generally, those individuals who qualify for credit counseling programs are in a position where their credit is already compromised due to any of a number of circumstances that are unique to the individual, including the level of indebtedness and record of missed payments; therefore, following through with the program will typically strengthen a score over time, as participation creates a pattern of proper credit management.

The simplest explanation as to how the credit scoring system works is the analogy of a cut on one’s finger. While initially the wound is raw, taking the precaution to keep the area clean and wrapped correctly will actually help the healing process. However, if one were to not take care of the cut correctly, problems will persist and even worsen. Therefore, joining a reputable, non-profit program and following through with it by making payments on time and in the required amount will help you create a more stabilized credit profile. Then, making use of the educational materials and counseling you received while on the program will help you avoid future difficulty.

For more information, or to speak with a certified credit counselor please contact Cambridge Credit Counseling at 800-897-2200 or

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