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Does Credit Counseling Hurt Your Credit in Canada?

Does Credit Counseling Hurt Your Credit in Canada?

Many Canadians struggling with debt undertake credit counselling. But what is it, what can it do and most importantly, will it hurt your credit score?


Credit counselling is provided by some nonprofits to help Canadians or for-profit counsellors who are more like financial consultants. Both aim to help you find a route out of debt while managing to pay off as much as possible.


Credit counselling


Commercial credit counselling is a paid service run by financial consultants or advisors. Nonprofits do the same but as part of a charity or citizen’s network.


Both have the ambition of helping you out of debt.


They will:

  1. Assess your current financial situation and debt
  2. Help you create a budget so you can live within your means
  3. Set up a plan for managing your debt


Some credit counselling can also include working with your creditors to help make arrangements for payment or lower rates or fees.


It can also create a debt management plan to help you prioritize debts and help keep the debt collection agencies at bay.


Debt Management Plan


A Debt Management Plan (DMP) is a formal plan that consolidates all your debt into a single payment. Your counsellor will work with all your creditors to come to an arrangement to pay everyone off while keeping terms and fees sensible.


Some DMP can also be used to reduce or waive interest, late payment fees and any other costs incurred while in debt.


Lenders do not have to accept a DMP but it is often in their interest to do so. One, you’re making a genuine effort to control and pay off your debt. Two, not accepting a DMP could mean they lose their money altogether.


So, lenders don’t have to accept DMP but they often will.


A Debt Management Plan cannot help you with credit cards, unsecured loans or other lines of credit.


Does credit counselling impact your credit score?


Yes and no. The counselling itself does not impact your credit score too much. It is listed on your credit report and will be for three years but the effect is minimal.


However, settling a lot of debt at once in favour of a consolidation loan or agreement can impact your score. A raft of debt settlements will cause your score to dip for a while before recovering eventually.


Counselling should also drastically reduce the chances of missed payments. Any missed payments can have a devastating impact on your credit score!


Is credit counselling a good idea?


If you think you’re going to miss payments or worse without help, credit counselling is a good idea. If you cannot see a way out of your situation yourself, it is definitely a good idea.


Getting any professional advice to help you manage your money or debt can be very worthwhile. Whether you choose to pay for that advice or use a nonprofit is entirely up to you!


If you need help or advice on anything to do with car loans, contact Car Nation Canada today, we can help!

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