Credit Services That Are NOT Credit Ratings Neutral

Not all credit services are created equal. There are services that can affect your credit score. If you are trying to improve your score, these services can actually hurt your standing. Here's what you should know.

Debt Management

While not being able to pay your bills on time will quickly trash your credit score, debt management can also negatively affect your credit score. Debt management services all work differently. Some of them work directly with your current creditors to freeze active accounts and lower interest, while others will purchase the debt and have you pay back the debt management service. The way they work is important to know if you want to preserve your score.

Anytime a creditor freezes an account, this is basically the same thing as closing the account. This does reflect on your credit report. Your credit score is partially determined by the ratio of debt you have compared to your overall credit lines. When an account is frozen, the debt ratio remains high, also lowering your credit score.

If a credit debt management program offers to purchase the debt, then this simply reflects as the accounts being paid off. But it can still negatively affect your credit score if they have negotiated for a lower rate. This is how it works the vast majority of the time. The creditors will report the accounts have been paid, but it will also reflect the circumstances.

Credit Counseling

Credit counseling is similar to debt management. The biggest difference being that the credit counselor will try to come up with a plan that you can follow without having to go through the hassle of freezing accounts. A credit counseling service generally won't have an effect on your credit, unless one of the debt management programs is recommended.

Sticking with a plan created by a credit counselor can help increase your score. If you are making on time payments because of a credit counseling plan, the creditors will start to report positively on your credit report. So even if you have a few accounts that had to be closed or frozen, this is still a better idea than letting your bills go unpaid.

Even though these programs can affect your credit score, it's much better than having to file bankruptcy. Bankruptcy is the easiest way to thrash your score. Letting bills go unpaid will quickly tank your score as well. Seeking credit management help is never a bad idea if you foresee you are going to fall behind. It looks much better that you've sought help than just let everything go.