Does debt counselling affect credit score?

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Navigating a Debt Management Plan (DMP) in Canada can impact your credit score by giving accounts an R7 rating, signaling creditors about your debt management efforts. This note stays on your credit report for 2-3 years after completing the plan. Credit recovery can be challenging as linked debts may remain for 6-7 years. But remember, there’s always a way forward! Reach out via phone, text, or live chat if you have any questions.

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Debt Counselling Credit Score Question

Does debt counselling affect credit score? Before going for debt counselling, I want to know if it could hurt my credit score or if it’s generally a neutral or positive step.

From: Anonymous Question
Location: Winnipeg, Manitoba (MB)
Category: debt management plan

Debt Counselling Credit Score Answer

Navigating debt counselling through a Debt Management Plan (DMP) can be a bit of a mixed bag when it comes to your credit score in Canada. While it’s a helpful tool in managing debt, it does assign an R7 rating to accounts in the program. Think of this as a heads-up to creditors that you’re working with a third party to pay off your dues. This little note about your DMP sticks around in your credit report for 2 to 3 years after you finish the plan, which can be a bit of a hurdle if you’re aiming to apply for new credit during this time. Plus, don’t forget about those individual debts linked to your DMP. They can linger on your credit report for about 6 to 7 years from their date of default, making the credit recovery path a tad challenging. But remember, there’s always a path forward!

From: Insider Scott

Office of the Superintendent of Bankruptcy (OSB) Answer

Debt counselling itself does not directly impact your credit score. However, depending on how you manage your debts following counselling, your credit score could be affected positively or negatively. Engaging in a consumer proposal or personal bankruptcy, or failing to keep up with agreed-upon payments can negatively affect your credit score. It is important to focus on developing a plan for managing your debt effectively after counselling, as that will ultimately influence your credit score more than the counselling session itself. For specific guidelines, refer to the Bankruptcy and Insolvency Act, particularly sections related to consumer proposals and their effects on credit ratings.

From: OSB Helper

Related Questions to Debt Counselling Affecting Credit Score

Here are the top 5 most frequently asked questions related to the impact of debt counselling on credit scores, based on current trends and concerns:

1. Does consulting a credit counsellor affect my credit score?

No, consulting a credit counsellor does not affect your credit score[4].

2. How does a debt management plan through credit counselling impact my credit score?

Entering a debt management plan will be reported on your credit report, marking accounts with an R7 credit rating and noting the use of a third-party arrangement, which remains on your report for 2 to 3 years after debt repayment[2][4].

3. Will credit counselling or a debt management plan lower my credit score immediately?

Yes, enrolling in a debt management plan can cause an immediate impact on your credit score, although the long-term effect can be positive if payments are made on time[2][4].

4. How long does a debt management plan through credit counselling stay on my credit report?

Each debt included in the plan will remain on your credit report for 6-7 years from the date of default, and the note about the debt management plan will stay for 2 to 3 years after you pay off your debts[2].

5. Does credit counselling affect my ability to get new credit while in a debt management plan?

Yes, credit counselling and being in a debt management plan can affect your ability to get new credit, as your credit limit on existing accounts may be frozen during the program[2][4].

If you have a question about debt see our debt questions or ask your own debt related question.

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