How Does Credit Counselling Affect My Credit?

Understanding Credit Counselling and
Its Impact on Credit Scores

There is a significant amount of misinformation circulating about debt relief options in Canada, leading many to make financial decisions based on partial or incorrect data. Hence, they often fall into inappropriate debt solutions, inadvertently causing long-term financial problems. One area particularly misunderstood is credit counselling, largely due to the incorrect information in circulation. This guide aims to demystify how credit counselling affects your credit and provide a clearer understanding of the process.

Breaking Down Credit Counselling

The common misconception is that credit counselling, unlike other debt relief solutions, like consumer proposals, does not negatively impact an individual’s credit. However, this is far from the truth. In reality, credit counselling services do affect your credit negatively and potential creditors will be aware that you’ve been in a debt management plan for up to three years after the plan is settled.

Note: Credit Counselling services DO negatively affect your credit.

The Real Impact of Credit Counselling on Your Credit

A Canadian consumer cannot enter a debt management program, like consumer credit counselling, without it being noticed by current and future creditors. Upon signing up for a credit counselling service, a note is added to your credit report, indicating your enrolment in a special program to manage your debt repayment.

This note can make it challenging to qualify for new credit while still repaying the debt under the credit counselling agreement. Even after repaying your debt, this note doesn’t immediately disappear from your credit report. Instead, it stays there for 2-3 years, notifying potential creditors of past difficulties in paying your debts.

Comparing Credit Counselling with Bankruptcy and Consumer Proposals

The impact of credit counselling on your credit report is similar to how a notice of bankruptcy or a consumer proposal remains on your credit report. However, a note indicating that you filed for bankruptcy is a much larger red flag for future creditors than a debt management program.

In fact, if you have filed for bankruptcy within the past seven years, you are almost guaranteed not to qualify for any loans with a low, competitive interest rate.


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Is the Impact on My Credit Negative?

It’s crucial not to jump to conclusions that the negative impact on your credit while you’re paying back your debt is always a bad thing. Lenders’ thorough examination of your credit history means they’re less likely to rush you into a loan you can’t afford.

Also, the negative effect on your credit score is often offset when you consider the amount of money you save by entering a debt relief program, especially true for debt settlement programs.

The Silver Lining of Credit Counselling

While the notice of settlement remains on your credit report and may make qualifying for new loans challenging, the savings enjoyed due to principal reductions outweigh the temporarily low credit score.

Checking Your Credit Score

It’s always a good idea to check your credit score regularly, especially if you’re considering credit counselling or a similar debt management program.

Weighing Your Debt Solution Options

Deciding which debt solution is right for you can be challenging. It’s important to carefully consider all your options and seek professional advice if needed.

The Role of Credit Counselling

Credit counselling can be a valuable tool for managing your debt and improving your financial health. However, it’s essential to understand the potential impacts on your credit and make an informed decision based on your unique situation.

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In summary, credit counselling does have an impact on your credit, but it’s not necessarily negative. It’s crucial to understand the implications and benefits before deciding on a debt solution. Remember, your financial health is important, and making informed decisions is the first step towards achieving financial stability.

Remember: Your financial health is important. Make informed decisions.

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During our initial meeting, they took the time to understand my debt and financial circumstances. They explained the various options available to me and helped create a personalized plan that would be most beneficial for my situation. With their assistance, I was able to avoid declaring bankruptcy by presenting a consumer proposal to my creditors. Fortunately, my proposal was accepted, and I am extremely relieved to finally be free of debt, all thanks to BankruptcyCanada. The burden on my shoulders feels significantly lighter now, and I truly believe that Bankruptcy Canada has the most skilled specialists in debt relief.