How Credit Counseling Influences Your Credit, Even If It Does Not Directly Lower Your Credit Score

Key Takeaways
  • Credit counseling will have both a direct and indirect effect on your credit report and score for the five years of enrollment.
  • You must close enrolled accounts, which will negatively affect your score.
  • Your credit report will include a notation regarding your DMP making it more difficult to obtain new credit while in the program.

GREAT! You’ve decided to finally do something about the tens of thousands of dollars you have in credit card debt.  It is no longer enough to make minimum monthly payments and reduce balances slowly. You’re done with that! 

You want to put your debt reduction strategy into hyperdrive, without dinging your credit in the process. After all, in the near future, you might want to buy a new car, upgrade your cell phone, or refinance your home.  

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But before deciding on a plan of action, what you really need to know is: How does credit counseling influence your access to credit and your credit score?

What is Credit Counseling?

Credit counseling is a method of paying off large amounts of unsecured debt with the help of an intermediary. The company works with creditors to lower current interest rates and waive late fees. The program requires that you pay off 100% of your credit balances plus some interest in no more than 60 months.

Even though you are paying your balances in full, a debt management plan, through a credit counseling program, will have both a direct and indirect impact on your access to credit and your credit score.   

What Factors Impact Your Credit?

Credit scoring companies use five major factors when calculating your credit score. Companies consider activities such as payment history, use of credit, overall credit history, new credit, and the credit mix. Newer scoring models also review less concrete things like credit trends.  

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Here is a look at both the direct and the indirect impact of credit counseling on your credit score:

The Direct Impact of Credit Counseling on Your Credit

The transition period: It is common to miss payments during the transition to a debt management plan. To avoid this problem, continue making minimum payments until the credit counseling company confirms your new payment schedule. You remain responsible for the debt payments even if the credit counseling company pays the account late.  

Closed accounts: Credit counseling requires that you close all accounts entered into the debt management plan. A closed account, with a balance, will hurt your utilization ratio (use of credit) until you pay off the debt

Calculation period: Debt repaid through credit counseling remains on your credit file, impacting your credit score for seven years.  

The Indirect Impact of Credit Counseling on Your Credit

Notation on your credit file: The notation on your credit file is not part of the credit scoring calculation. However, its presence can lead to rejected applications because most lenders will not approve new debt to someone in a debt management program. 

Credit history: Credit scoring relies heavily on current payments. When you close the majority or all your credit accounts, you might not have any new positive activity to reflect your current financial situation. 

Because of the difficulty in obtaining new credit, you might find it necessary to resort to co-signed or secured debt to reestablish your credit.  

The inability to apply for new credit can delay credit recovery. It is difficult, and sometimes impossible to obtain new credit while in a credit counseling program, even if you are making on-time payments. Adding a new credit card could also jeopardize your plan, because enrolled creditors could void the concessions offered. 


While credit counseling is not a factor in the credit score calculation, it can have a significant negative effect on your credit and make it difficult to rebuild your credit history and credit score while in the debt management program.

  • How does credit counseling affect my credit score?

    Enrolling in credit counseling will have negative implications to your credit score. You must close all enrolled accounts, which lowers your utilization ratio and could shorten your credit history. Both these factors will cause a decline in your credit score. Missing payments during the transition will also directly affect your score. 

  • How long will credit counseling remain on my credit report?

    5 years: When you enroll in credit counseling there is a notation placed on your credit file. The notation remains as long as you are enrolled, which is a maximum of five years. Any missed payments or other derogatory information will stay on your report for seven years. 

  • How long will it take to rebuild credit after credit counseling?

    Paying all remaining debts, such as a mortgage or car payment, will help rebuild your credit while in a debt management program or DMP. However, if you keep a credit card open at enrollment to expedite your credit recovery, enrolled creditors could refuse your repayment plan. Getting a new credit card during the program could also result in enrolled creditors revoking concessions, making it more challenging to rebuild credit while in the program.