10 Myths About Your Credit Report – Part 4: Credit Counseling Will Improve My Credit Score

13 Oct 10 Myths About Your Credit Report – Part 4: Credit Counseling Will Improve My Credit Score

Credit counseling can do a lot of things. It can keep creditors at bay while you restructure your finances, it can lower interest rates, and it can help you combine your monthly payments by using a third-party company.

What credit counseling cannot do, however, is improve your credit score. Why? Because good credit is based on your ability to repay your existing debts according to the terms of the original agreement between you and the creditor.

When you go into credit counseling, the agency you work with will immediately seek to negotiate a better interest rate or a different payment date with the creditor in an effort to get you a better deal.

Even if such proposal is accepted, it by necessity means that you will be making payments that are not according to the original agreement. That’s bad, and it will serve to reduce your credit score.

Now, the kicker. Your credit score will remain depressed until your credit counseling is completed. At that time the account will go to “paid” status, but the legacy of credit counseling will remain. As with any other negative mark on your credit report, the importance of credit counseling will recede as time goes by. But in the near-term, that blemish will impact you even after you’ve worked hard to pay off the debt.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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