Debt Counselling And Credit Score: What Is The Link?

Debt counselling is a formal process designed to help heavily indebted or over-indebted individuals break free from the chains of personal debt.

Living with excessive loans can wreak havoc on an individual’s finances. In order to reduce the burden of debt, people seek debt counselling.

After evaluating your outstanding debts, income and monthly expenditures, a debt counselling company will develop a debt-restructuring plan that suits your needs.

The concept behind debt counselling is to help indebted or over-indebted families pay off their debts at affordable rates and maintain a decent lifestyle through a manageable household budget, without taking loans from lenders.

To put it another way, debt counselling is like financial counselling. It is a practical way for you to take control of your finances.

One of the most frequently asked questions about debt counselling is related to credit score. Does participating in a debt counselling program hurt an individual’s credit score?

Understanding credit score

Credit score is a very important financial number. When you’re applying for any type of loan, such as car, home, etc., the lender will use your credit score to determine your financial worthiness. If you have a decent score, there is a great chance you might get loan approval. On the other hand, low credit score applicants are considered high-risk applicants. Therefore, lenders typically reject their loan requests or charge higher interest rates.

Your credit score is in your credit report. As a rule of thumb, check your credit report regularly for errors and frauds.

The impact of debt counselling on credit score

Seeking debt counselling service will not affect your credit score. A debt counselling company will work with you to create a realistic budget and keep debt under control future.

However, the debt counselling company will formulate a debt management plan, which entails negotiating loan rates and terms with your creditors. This particular information will be added to your credit report. But, it will not have an impact on your credit score.

Once all your debts are cleared, debt management history will be removed from your credit report.

Need to apply for debt counselling?

If you are being harassed by lenders or are on the verge of bankruptcy, it is important to consult an experienced debt counsellor to take control of the situation.

Credit Matters provides comprehensive debt counselling and debt management in South Africa. The licensed debt counselling company also offers free credit report and debt counselling assessment to individuals struggling to overcome their financial issues.