How Non Profit Debt Counseling Will Affect Your FICO Credit Score

Non profit debt counseling sessions are provided to clients' without charge. Not only that, there aren't any restrictions with respect to how many services someone is permitted to use. This means that, if you are not satisfied with the help provided, you are free to go elsewhere.

Whilst the objective of counseling is to reduce credit card debt, loans, medical bills and unsecured debt maintaining your FICO credit score is also very important. The short answer is that it can affect your credit score, but not necessarily.

Budgeting Help from a Non-Profit Debt Counseling Service

A fundamentally important part of credit counseling is the provision of a comprehensive budgetary analysis. This means that you will need to supply your advisor with income/expenditure details and any recent statements from creditors.

The advisor will look closely at both your income/expenditure and assets/liabilities. The objective is to identify any areas where savings can be made or additional money earned. A suggestion could be as little as a change to your lifestyle or working some over-time.

In approximately 40% of cases, help with budgeting is sufficient to balance household bills and reduce credit card debt. Should this be the case, your FICO credit score will not be affected at all.

Debt Relief Programs from a Non-Profit Debt Counseling Service

When budgeting assistance is not sufficient to reduce your income-to-debt ratio, the advisor may suggest a debt settlement program or a Debt Management Program. These aim to reduce the principal (clear some of the debt) and/or make monthly payments more affordable.

A debt relief program involves defaulting on a credit agreement. Whilst this will help to reduce credit card debt, it will also have negative ramifications for your FICO credit score. Changing the terms of repayment to achieve affordability will be reported to all major credit reference agencies.

Remember that protecting your FICO credit score is not as important as being able to reduce credit card debt. If you bury your head in the sand, your credit rating will deteriorate. If you have missed or made late payments, this will have been reported to credit reference agencies. That said, only enter a debt relief program if a budgetary analysis by a non profit debt counseling service fails to achieve financial parity.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.