If you have a solid credit score but have tacked on some debt, you are probably looking for a credit repair solution that will maintain your good credit and also get you out of debt. But it raises the question: Do debt relief programs hurt your credit?
How far and how fast your credit score either bounces or falls is dependent on several factors, but when it comes to the question of do debt relief programs hurt your credit?—there could be both positive and negative outcomes.
If you are currently researching whether debt relief options tarnish your credit, perhaps you are not in a position to be spending or to look for additional credit products. Focusing on eliminating your debt should be your top priority, and depending on the program you might choose, there could be both benefits and repercussions of debt relief.
Credit Utilization Impact
The main objective of a debt management program is to pay off your credit debt, so if you stay with the program over time, you should see your credit utilization falling into more optimal ranges. FICO attributes 30 percent of your score to this “amount of credit owed” category. If your creditors choose to close or even freeze your accounts while you are on the program, however, your available credit will equal your amount owed, resulting in a credit utilization of 100 percent. This may have a negative effect on your score, but it can most likely be mended as you produce on-time payments with the program.
Although some programs don’t report your enrollment in their debt management program or take any sort of action that might alter your credit score, some creditors may report that you are participating and some can display if you have chosen to shut down your account. Closing several cards at once can negatively affect your score as well.
Factors of Credit Impact During a Debt Relief Program
To grasp how impactful the effect of closing your accounts can be, we’ll take a look at the primary factors that determine your credit score—history of timely payments, length of credit history, kinds of credit and new credit cards—and see how getting on board with a debt management program may affect them.
With brand new credit cards, such as recently opened department store cards, you most likely will be locked out of new, unsecured credit products for the entirety of the debt management program—meaning an average of 4 to 5 years. You’ll appear unreliable if you have opened up several new cards, yet a debt relief program should most likely have no impact on your score, with 10 percent within this category accounted for by FICO.
Having experience with various types of credit—including mortgage loans, auto loans and individual credit cards—will prove to lenders that you can pay these off in time and have a diverse (but responsible) history. FICO deems this a 10 percent portion of your score, and it shouldn’t carry much weight if you are using a debt relief program.
If you have demonstrated a history of untimely credit payments, and you are planning to enroll in a credit relief program, it may be difficult to acquire financing during the program. Because this trend typically causes your credit score to suffer, a debt relief program will help you get in the habit of making on-time payments. This category accounts for 35 percent of your FICO score—the largest portion—but a debt relief program would eventually help you boost your score by getting used to producing bill payments on time.
Overall, working with a debt consolidation company will most likely help you consolidate the debt you currently owe, letting you pay it off faster and with less interest involved–so your credit rating will usually be positively affected. Consolidating your debts will show as already paid debts with balances of zero, which can boost your credit through a debt relief program. Furthermore, if everything stays consistent during the program, such as your on-time payments, your credit history (which will have been rebuilt over several years) should be cleaned up and your credit score in good shape.
So, do debt relief programs hurt your credit? Whichever route you choose to eliminate your debt, remember that the ultimate goal is to be able to save and invest for future plans. If you can finally drop your credit balances down to zero, the minor hit to your credit may be worth the debt relief program. Keep track of your credit and consider getting a secured card, as well as scheduling a consultation with Go Clean Credit.
No matter what your situation, Go Clean Credit has a solution. We have many credit repair programs that are available to help you overcome your credit situation and place you back on the path to financial success. Real credit restoration is not a once size fits all model and we tailor your needs to the right program, but most people can start for just $99 per month.
We have fixed price programs that get you back on track in as little as 5 months, debt resolution solutions, programs geared toward people who have had recent short sales or foreclosures and many others. Help is just a free phone call away or you can fill out an appointment request. Contact Go Clean Credit to schedule a free consultation today.