Find out which of these programs is right for you.
In understanding how credit counseling may affect your credit status, it is important to know the differences between credit counseling and actual debt repayment programs.
There are definite differences between credit counseling and debt repayment plans in regard to long-term effects. With credit counseling, there is no signed commitment, none of your accounts are affected by the agency itself, and you retain total control of how your debts are paid and when. In addition, credit counseling in no way affects your credit rating and does not show up on your credit report. But because there is no signed commitment, the agency must leave the repayment of your debt in your hands, which may leave you exactly where you started-overwhelmed with the burden of going it alone.
With a debt repayment plan, your credit status may be affected by the plan itself. Creditors may report that an account is in a debt repayment plan, that some payments (if any) have been missed, or that there are write-offs or other concessions that have been made to help reduce your debt to a workable amount. Under the Fair Credit Reporting Act, this accurate information about your accounts can stay on your credit report for up to seven years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. However, if you can avoid filing bankruptcy, a debt repayment plan may be worth the trouble. Remember, write-offs and late payment notations may stay on your credit report for seven years-a bankruptcy can stay on for up to ten and is a matter of public record as well. This means that in addition to having individual account notations, you will also have the notation of the bankruptcy listed separately on your credit report.