It's a common misconception that entering a credit counseling program will ruin your credit scores. Unfortunately, this misunderstanding scares thousands of consumers away from a service they could really benefit from using before their credit problems get out of control.
It's easy understand why a lot people believe this credit myth, since it makes sense that meeting with a counselor indicates you might be experiencing difficulty with your credit and need guidance. If I were lending you money, like a credit card company does, that would worry me too.
However, the truth is that working with a credit counselor will not, in and of itself, have any effect on your FICO scores. According to Fair Isaac, creator of the FICO credit score, "whether or not you are participating in credit counseling of any kind" is not considered in your credit score. It can't get much clearer than that.
This doesn't mean that participating in a credit counseling program won't make it more difficult to get approved for credit products. I tend to compare credit counseling to something like "income" when I talk to people about how potential lenders will view their credit risk.
While your income isn't taken into consideration by credit scoring models, your ability to get approved for credit can most certainly be affected by the size of your paycheck. Credit counseling has the opposite effect. It won't directly hurt your credit scores either, but any real human being reviewing an application for credit will have concerns once they realize you're in a credit counseling program.
That said, if you're only concerned about getting your finances straight and have no interest in applying for new credit, this is nothing to worry about. Getting your credit back on track is the only thing that should matter. Applying for new credit cards shouldn't even be on the radar if you're already headed down the wrong path.
So don't be afraid to enlist the service of a reputable credit counselor well before you find yourself in financial trouble, missing monthly payments or dodging calls from debt collectors. In fact, the best time to reach out for help is when there's still plenty of time to develop a financial plan and keep your good credit where it belongs.
The National Foundation for Credit Counseling is a great place to begin your search for reputable credit counseling firms that are more interested in your bottom line than theirs.
