Credit Help

How credit counselling can be the free way to start fixing a credit problem.

Debt problems are a double-edged sword. Not only do they create financial stress for your budget, but the challenges can also damage your credit. As a result, even once you eliminate the debt, you may still be dealing with the fallout for up to a few years after as you work to regain a good credit score.

With that in mind, the secondary mission that you have while you work on your primary goal of eliminating your debt has to be to minimize the damage to your credit as much as possible. That means you have less of a hill to climb to recover the credit score you want. Thankfully, credit counselling is one of the solutions you can use that not only helps you avoid damage to your credit, it can actually help you build credit.

Helping you to see where you stand

During the first free consultation you have with a credit counsellor, part of the debt and budget evaluation includes a credit report check. Your credit counsellor will pull your credit report to see what negative items may be impacting your credit, such as missed payments and collection accounts. They don’t look at your score and cannot provide the full report to you directly, but they can tell you where you stand.

This can be invaluable to determine exactly how much damage your credit has taken from negative items in your credit report. The more negative items your report has, the more it will hurt your credit score. On the other hand, if you’ve managed to stay ahead of your monthly payments and avoid collections in spite of debt problems, this review can help you determine if your credit is still intact.

It’s useful to note that the credit check that a credit counsellor does is considered a “soft” credit inquiry. This means it does not negatively affect your credit profile. Too many hard credit inquiries can actually decrease your score, such as applying for multiple loans and credit cards in a short amount of time. This credit check does not count towards that total so you don’t damage your credit just by seeing where you stand.

Important Note: While the credit counsellor cannot give you your report during the consultation, you can download a 100% free (no strings attached) copy of your report once per year through This will allow you to view the negatives items yourself and have your report to refer back to later ask you work to rebuild your credit.

Helping you build a better credit score

Once the initial credit counselling evaluation is complete, you should have a clear path to take to get out of debt. In many cases that solution will be to enroll in a debt management program. This allows you to consolidate your debt, regardless of your credit score. So even if you have bad credit, you still have a path to use debt consolidation.

Consolidation combines your debts and reduces the interest rates applied, allowing you to get out of debt faster even though your total monthly payments are typically reduced between 30 to 50 percent. People often think that restructuring debt payments by consolidating means you’ll damage your credit score. However, if a debt management program is completed successfully, it does not create negative items in your credit report.

Basically, items in your credit report can be positive, negative or neutral. Taking actions like missing payments or having an account go to collections are negative. By contrast, taking actions like making a payment on time or paying off a debt have a positive effect on your credit. Actions that neither raise nor lower your score are considered neutral.

A debt management program allows you to create a series of positive actions in your credit profile. First, each payment you make on time to the program is a positive action. Credit history is the number one determining factor in your credit score calculation. Every payment you make on time builds a positive credit history, thereby helping you build better credit.

At the same time, you’re reducing your total debt. Credit utilization is the second biggest factor in your credit score calculation. This measures your total debt versus your total available credit line. If you have three credit cards each with a limit of $1,000 and you currently have $1,500 in debt total between the three cards, then your credit utilization ratio is 50%. The lower your ratio, the better it is for your credit.

By eliminating your debt using a debt management program, you zero out your balances so you drop your utilization ratio to zero. This is an extremely positive action for your credit. As a result, by building a positive credit history and dropping your utilization ratio to zero, the overall effect of a debt management program is positive.

When does a DMP not help my credit?

There are two situations where a debt management program won’t be positive for your credit.  In the first case, the effect of completing the program may be neutral. Here’s why…

If you managed to maintain an excellent credit score in spite of the challenges you face with debt, then the positive effects of completing the program may not have as much of a positive impact. In some cases, the overall effect may be neutral, meaning your credit score would stay relatively the same.

This happens because it takes more to improve your credit score once it’s already high. If you have rock-bottom bad credit, then any action you take will be a step in the right direction. On the other hand, if you already start out high, it takes more to move the needle in a positive direction.

With that in mind, if you have a really strong credit score, the program won’t affect you negatively, but it may not give you much of a boost either. The good news in this case is that you’ve eliminated your debt without damaging your good score; that in and of itself is positive.

On the other hand, a debt management program will only have a negative effect on your credit if the program is not completed successfully. If you miss program payments or drop out, then the effect on your credit will be negative because you’re taking negative actions.