Will credit counseling hurt my credit? That’s the million dollar question that can neither be confidently answered with a “Yes” or a “No.” But, to help you understand the potential impact it may have on you, you’ll need to consider some facts about a Debt Management Program and credit reporting.

However, before we get into that, let’s define three different services that most people commonly mistake as the same:

1. Credit Counseling

This service typically consists of a nonprofit agency reviewing a list of your creditors, analyzing your monthly spending plan and income, and providing financial education and a list of possible solutions to pay back your debt.

2. Debt Management Program

This service is typically offered after the credit counseling session if the client qualifies. The benefits of this program include: one, low monthly payment, reduced interest rates, and becoming debt-free in three-to-five years. The consumer makes payments to the agency each month, who then disburses all payments to the consumer’s creditors. Payments continue each month until 100% of the debt is paid back.

3. Debt Settlement or Debt Negotiation

This service is typically offered by for profit companies. The benefits of this program include: one, low monthly payment, paying only 50% of what you owe, and becoming debt-free in typically two-to-three years. The consumer makes a payment to the agency each month; however, no payments are disbursed until a settlement of the total balance is reached. Most creditors will only settle the balance if the account is seriously past due (usually six months or more). Therefore, this service will have a negative effect on your credit as it requires you to become delinquent with your debt.

Now that we’ve defined those services, let’s return to the original question: will credit counseling hurt my credit? The answer to that is no. Going through a credit counseling session should not have any effect on your credit. Most agencies will pull a copy of your credit report during the session, but that is considered a soft pull, which doesn’t affect your credit.

So the question that you want the answer to is actually: will a Debt Management Program affect my credit? Here are five facts to help you understand the credit effect of a Debt Management Plan:

A Footnote Does Not Affect Your Credit Score
According to Experian, participating in a Debt Management Program does not affect credit scores directly. Some credit card companies will place a footnote on your credit report, stating that you are enrolled in a Debt Management Program, but it should not impact your credit scores in any way.

Closing Accounts Could Be Harmful
When enrolling onto a Debt Management Program, the creditors require that each account is closed. When an account is closed, it may affect your FICO score. Because 30% of your FICO score is based on your debt-to-credit ratio, closing down lines of credit can increase this ratio, ultimately lowering your credit score. But, if you are already maxed out or close to being maxed out on your accounts, then this shouldn’t affect you as much. If you are concerned with your credit score, it is recommended that one account with available credit remains off the program.

Payment History Remains Important
Since payment history is the most important factor in calculating your credit score (35% of FICO score), it is recommended to keep accounts current before, during, and after enrolling onto a Debt Management Program. If you are unable to keep your accounts current during this timeframe, your creditors may report you past due. But typically, creditors only report you past due when you become more than thirty days late.

Credit Scores May Increase in the Long-Run
The average credit score for clients entering DebtWave’s Debt Management Program in 2014 was 603. And, the average credit score for clients a few months before completing their Debt Management Program in 2014 was 712. There’s no guarantee that your score will increase. But, our research shows that most clients who have committed to making on time, monthly payments for a three-to-four year period on our program have seen their credit score increase over time.

Put The Focus on Getting out of Debt, Not Your Credit Score
The primary purpose of a Debt Management Program is to get you out of debt, not to improve your credit rating. Credit can be defined as the ability to borrow money. For most people with a lot of debt, borrowing more money is the last thing needed. A quote from Rich Dad, Poor Dad explains it best, “More money seldom solves someone’s money problems. Intelligence solves problems. There is a saying a friend of mine says over and over to people in debt. ‘If you find you have dug yourself into a hole… stop digging.’”