How does credit counseling affect credit score?

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Engaging in credit counseling won’t change your credit score immediately. Joining a debt management plan (DMP) via credit counseling marks your accounts with R7, indicating a repayment plan. This may make new credit acquisition harder and could pause credit limits on related accounts.

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Credit Counseling Question

How does credit counseling affect credit score? I’d like to know if credit counseling has any immediate or long-term effects on my credit score and what those might be.

From: Anonymous Question
Location: Thunder Bay, Ontario (ON)
Category: debt management plan

Credit Counseling Answer

Engaging with credit counseling won’t directly change your credit score. However, joining a debt management plan (DMP) through credit counseling gives your accounts a special R7 mark—a sign that you’re in a registered repayment plan. This information is shared with the credit bureaus. So, while you’re working through a DMP, getting new credit might be trickier. Plus, the credit limits on the accounts in your DMP could be paused while you’re on the plan.

From: Insider Adam

Office of the Superintendent of Bankruptcy (OSB) Answer

Credit counseling can have both immediate and long-term effects on your credit score.

Immediately, participating in credit counseling may lead to the establishment of a debt management plan (DMP). While entering a DMP itself does not directly affect your credit score, the actions taken during the program, such as making timely payments and one-time settlements with creditors, can improve your credit score over time.

In the long-term, the impact on your credit score depends on how well you maintain your payment plan. Consistent payments can reflect positively on your credit report, as they demonstrate responsible financial management. Conversely, if you default on the DMP or creditors refuse to negotiate terms, it could negatively affect your score.

For more specific regulations concerning credit counseling and its implications, refer to the Bankruptcy and Insolvency Act (RSC 1985, c 11), particularly in sections addressing consumer proposals and debt management practices. More detailed guidelines on regulations regarding credit counseling can be found in SOR/2007-256 and its associated regulations.

From: OSB Helper

Related Questions to Debt Management Plan

Here are the top 5 most frequently asked questions related to how credit counseling affects credit scores, based on the provided sources and general online trends:

1. Does credit counseling affect my credit score?

Yes, enrolling in a debt management program through credit counseling will negatively affect your credit score.

2. How long does a debt management plan through credit counseling stay on my credit report?

A note indicating you are in a debt management plan will remain on your credit report for 2 to 3 years after you pay off your debts.

3. What happens to my individual debts on my credit report during a debt management plan?

Each debt included in the plan will be marked as part of a registered repayment plan and will remain on your credit report for 6-7 years from the date of default.

4. Can I get new credit while I am in a credit counseling debt management program?

It may be harder to qualify for new credit while you are still repaying the debt covered under the credit counseling agreement.

5. Is the impact of credit counseling on my credit score worse than other debt relief options?

The impact is generally less severe than bankruptcy but more significant than simply consulting a credit counselor for advice, and it is comparable to but distinct from the impact of a consumer proposal.

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

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