free credit counseling

Free credit counseling and Your Credit Record

Your report won't be affected if you just get free credit counseling about creating a budget or financial planning. But your creditors may notify the credit bureaus when the credit-free credit counseling agency gets them to lower their interest rate, eliminate some fees or adjust your payments. In that case, a narrative code will appear on your credit record specifying that you're in credit free credit counseling. It's up to other lenders to decide how to view this: "Some may see it as a negative; for others it may be positive that you're doing something about your situation," says Dave Mooney, spokesman for Equifax, one of the three major credit bureaus. Most of the online debt consolidation companies now offer free credit counseling or debt consolidation credit counseling for people who need it.

At Equifax, you can get the notation removed after you finish paying off the creditors. Contact the credit bureau and tell them you've completed the program. The bureau will verify the information with your creditors, then remove the notation. If you don't ask for the notation to be removed, it can remain in your credit file for up to seven years.

With Experian, another major credit bureau, it's up to the lender to get the notation removed after you complete the program. If you've finished paying off the debt and the notation remains on your report, ask your lender to contact the credit bureau.

See How to Fix a Credit Report Error for more information about your credit record.

Incidentally, in the past, going to credit free credit counseling would cause points to be deducted from your credit score, which many lenders use when deciding who to accept and reject for loans. "Statistically, it does show a higher propensity to go bad on a credit obligation sometime in the future," says Craig Watts, spokesman for Fair, Isaac, which designs the credit-scoring calculations. However, Fair, Isaac recently changed the rules so credit free credit counseling no longer affects your score. "We decided it was in everybody's best interest if we had it changed so that people can go into credit free credit counseling without worries about what it might do to their credit score."