FAQ: Does Credit counseling destroy a credit score?
Traditionally, credit counseling services offer clients "debt management plans." Debt management plans do not focus on building credit but helping families get out of major amounts of debt. This is critical for some families. In a debt management plan, a consumer hands over all debt to the credit counseling service to negotiate settlements with creditors, consolidate debt and manage the repayment schedule. A debt management plan is best used as a last step before filing for bankruptcy. Thus, debt management plans may not prioritize monthly on-time payments but paying back debt. They may also require the consumer to cut-up all credit cards and close all active accounts which can have a very negatively impact on a credit score going forward. Some consumers need credit counseling and debt management, however many low and moderate income clients would benefit more from a nonprofit that provides credit education and credit coaching, and bank partnerships so they can begin to build credit. .
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