Do you think reaching out for financial help will hurt your credit score? Think again. From budgeting advice to a free consultation and financial education, none of it shows up on your credit report.
Nonprofit credit counseling agencies provide free services that include budgeting advice and financial education that have no impact on your credit score.
Enrolling in a Debt Management Plan (DMP)
If you’re struggling with debt and looking for help, you may want to enroll in a debt management plan (DMP). This allows your credit counselor to negotiate with your lenders to reduce your interest rate and consolidate your loans into one affordable monthly payment.
While long-term, this will help you recover your financial wellness, it’s important to understand how this might impact your credit score—short-term.
Short-Term Impact of a DMP on Your Credit Score
For instance, when you enroll in a DMP, you'll typically be required to close the affected credit card accounts you're paying off through the plan. This can raise your credit utilization ratio (the percentage of your available credit that you're currently using) since closing accounts reduces your total available credit. Having a larger amount of unused, available credit is good for your score, so this dip is temporary and tends to improve as you pay down your balances.
Additionally, while credit counseling and other services are typically free, there is often a small monthly cost to enroll in a DMP, usually no more than $40.
Long-Term Impact of a DMP on Your Credit Score
The most negative ways to impact your credit score is to go deeper in debt, make late payments, or miss them completely. When you enroll in a DMP, you’ll be making consistent, on-time payments, which will ultimately boost your credit score over time. As you pay down your credit cards, your credit utilization will once again go up—also helping to repair your credit score.
Looking to Make an Appointment With a Credit Counselor?
As your local credit counseling resource, CCCS of Minnesota proudly belongs to the NFCC network, the nation's oldest and largest nonprofit organization offering credit counseling, debt consolidation, and financial education through agencies just like ours.
Bottom Line
Credit counseling itself has zero impact on your credit score, including meeting with a counselor, getting budgeting advice, and accessing financial education. If you do choose to enroll in a DMP, you may see a minor, temporary dip as your accounts are adjusted, but this is outweighed by the long-term benefits of lower interest rates, reduced fees, and a path out of debt.