How Do Debt Relief Agencies Affect Credit Scores?

Debt relief agencies are designed to help you get out of debt as quickly as possible. While many people like the thought of getting out of debt, they worry that using a debt relief agency will negatively impact their credit score. Consider the following before making any commitments or credit changes:

Debt Relief Basics

It is important to understand exactly what a debt relief agency does. When you enter into an agreement with a debt relief program, you supply them with a list of your creditors. You then rely on them to act as an agent on your behalf. They will then call your creditors and set up a payment plan for you. As a result, the interest rate that you pay will go down and your payments will likely be a little less than before. They can also negotiate the removal of any late fees on your accounts. As part of the agreement, you will not be allowed to use your accounts or open any new accounts until the program is over. 

How This Affects Your Credit

Remember that you have altered the original agreement that was originally signed by you when you change any terms. The credit card companies gave you the information in writing and you agreed to it. If you have to change the contract, you are not living up to your end of the bargain and the credit card companies are losing part of their profit. The card company will report the changes to the credit bureaus and it will affect your credit rating.

How bad will it hurt?

The amount of credit score points is currently debatable because the larger credit houses have not published concrete numbers. Most of the time, being late will hurt you more. Over a third of your credit score is affected by your payment history. Therefore, if you did not join a debt relief program and get things under control, your score would be damaged much worse. The small hit that your score will take as a result of joining debt relief is small by comparison.

One of the biggest factors that hurts your credit score is when your cards are maxed out at their limits.  Try to keep your cards well below their limits. For example, if you have a $2000 card, keep the balance at $1000 every month.

If you are used to consistently making late payments or missing payments, debt relief will help increase your credit score. They will get establish a payment schedule and also establish consistency over time, which is the biggest factor in bring up credit scores.


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