- Not every type of debt-relief program has the same effect on your credit score. Many companies advertise that they will provide you with debt relief but are not specific about what they will do. Some provide debt-management plans in which you agree to a repayment plan with your creditors and pay them back in full over time. Some companies offer debt settlement, in which you pay a fraction of what you owe in a lump sum.
- If you enroll in a debt-management plan, the effect on your credit will be minimal. You aren't avoiding paying back any of your debt. According to Bankrate, "Since 1999, FICO has ignored any credit-counseling information when calculating a consumer's credit score." You are being proactive and taking the necessary steps to pay off your debt in full. Your creditors may give you a break on interest, but this does not hurt your credit.
- If you pursue debt settlement with the help of a debt-relief company, this could give you different results. Under debt settlement, you pay less than what you owe. Creditors report this negatively to the credit bureaus. If you had a high credit score, this could lower it by as much as 125 points.
- With both of these options, you may not be able to get additional credit for some time. When you enter into a debt-management plan, one of the stipulations is that you cannot obtain additional credit. This means you cannot open any more credit or store accounts or take out loans. After the debt management plan is over, and you've followed all its conditions, you should be able to get credit because your score will not be affected. With debt settlement, it may take a few years to build your score to a point where you can get credit again.