If I use a credit counselor, will I get a better credit rating than if I file for bankruptcy?

Using a credit counselor won’t necessarily give you a better credit rating than if you decide to file for bankruptcy. It’s important to understand how your credit score is calculated and what factors may influence the score. Of course, there are other factors that should influence your decision of whether to file for bankruptcy than your credit rating.

Factors That Influence Credit Rating

Positive and negative information both have an impact on credit reports. For instance, scores increase when making payments on time and may decrease when you are late making payments. The following factors can impact your credit score: 

• payment history;
• amount of debt;
• length of credit history;
• new credit; and
• types of credit. 

There are numerous things that don’t impact the rating, and one is choosing to use a credit counselor. However, if this service helps you reestablish your credit, then it could improve your score later.

Bankruptcy definitely affects a credit rating; the degree to which it does depends on a variety of things. For instance, if someone has a history of bad credit, it’s not likely to cause as significant of a drop when compared to someone whose credit had always been good.

How Credit Counseling Can Help a Financial Situation

Credit counseling can help some people put together a plan to take steps toward improving their financial situation. But seeking this type of service doesn’t in itself improve a credit rating. People sometimes mistakenly believe that a credit counselor can repair bad credit using some special service. But no one can make such promises.

Some of the ways a credit counselor might help include: 

• setting up a budget;
• contacting lenders to reduce interest rates or change the payment plan;
• help consolidate bills, making it easier to pay one loan rather than several; and
• provide financial education to prevent the same problems from occurring again.

Keep in mind that credit counseling typically involves two types of services, debt management and debt settlement. Those who don’t want to file for bankruptcy and have a lot of credit card debt might benefit from debt management services. Someone who wants help negotiating the amount still owed to a lender would utilize debt settlement services.

Because a settlement shows on a credit report as being partially paid, it may or may not damage the rating further. Those who go through debt management and eventually pay everything off have the opportunity to start rebuilding their credit. It won’t happen overnight, but it’s at least a step in the right direction.

Should you file for bankruptcy?

If you choose to file for bankruptcy in Texas, you are required to go through an approved credit counseling course. Upon filing for bankruptcy, you’ll also have to complete a debtor education course. Talk to a financial advisor and an attorney about whether bankruptcy is a viable option for you. If you choose bankruptcy and you’re worried about your credit score, know that you can rebuild your credit after filing.

Learn more requirements to file for bankruptcy in Plano from an attorney at Warren & Migliaccio. Call (888) 584-9614 or fill out our online contact form.