The act of seeking credit counseling is not reflected on a consumer's credit report. However, information collected by Experian, Equifax and TransUnion is gleaned from creditors who report how the consumer manages a specific debt. This type of information is not reported by a credit counseling agency.The effects of credit counseling can salvage a credit history.
A Better Budget
A reputable credit counseling agency provides advice to consumers on how to manage their money and lays out the possible solutions to consumers' debt difficulties for an small fee that may be waived in cases of hardship. The National Foundation for Credit Counseling notes that one strategy a credit counselor may use is to devise a smarter budget for the consumer that takes care of the consumer's basic living expenses while allowing him to make payments to creditors in a timely manner so that his credit reports are not affected. However, when a consumer has a hefty amount of debt and can't find a way to pay it, another solution may be a debt management plan.
Debt Management Plan
The NFCC describes the DMP as a systematic way to pay down existing debt that typically takes between 36 and 60 months. This program requires consumers to make a monthly deposit with the credit counseling agency. The payment is used to pay the consumer's outstanding debts. Often, credit counselors will negotiate with credit card companies to reduce interest rates and waive late fees and over-limit fees. During this time, the consumer's credit card accounts are closed or suspended, and the consumer may be required to refrain from applying for additional credit lines or loans. As long as the consumer makes timely and full deposits, the credit counseling agency ensures that the consumer's debt is paid according to the creditor's terms.
While enrolled in a DMP, consumer's credit report may reflect different information than it had previously, especially if a credit counseling agency renegotiates the terms of the debt and the consumer had been keeping abreast of payments before the DMP. The NFCC notes that once a debt management plan is completed, most consumers have no difficulty obtaining new credit and can be approved for a mortgage or a car loan.
Credit Repair
Credit counseling or participation in a DMP will not get negative information off a consumer's credit report. Most negative information, such as debts that are charged off or go into collection, is reflected on the report for seven years--10 years in case of bankruptcy. Consumers who find errors on their reports must contact the consumer reporting agency to dispute the information.
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