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Should I Deal with My Creditors Directly or Work with a Nonprofit Company?



I’m applying for a FINRA license, and I know they’re going to run a credit check. I have some late payments on my credit cards. Is it better for my credit score to work with my creditors directly? Or should I go through a nonprofit company?

— Debra in Florida

Howard Dvorkin, CPA answers…

There’s something ironic about this situation, and I’m sure Debra is aware of it. For everyone else to appreciate it, however, they need to know what FINRA is.

FINRA is a nonprofit that’s authorized by the government to oversee stockbrokers and other people who invest your money for you. To sell a securities product, they need to be tested and licensed. So, the irony is that Debra is having trouble managing her finances – while she’s applying to manage other people’s finances.

This isn’t necessarily a problem, and it can actually be an advantage. The world is full of excellent therapists who have suffered psychological problems, and personal trainers who were once overweight. Triumphing over such situations can make you more sympathetic to the plights of others, and it can help you excel in your job.

That said, Debra definitely needs to get current on her credit cards, and she needs a respectable credit score before she can dutifully advise others. There are several key points here, so let’s knock them down one at a time…

Credit checks vs. credit scores

The first thing Debra needs to know: A credit check has very little to do with your credit score.

A credit check (also known as a credit inquiry) doesn’t just happen. You must give permission. That happens when you ask someone to loan you money, whether it’s for a credit card, an auto loan, or a mortgage. Lenders check your credit reports to make sure you’re a good risk.

When they do this, it’s called a “hard inquiry.” I’m guessing Debra has heard that hard inquiries can drag down your credit score, and that’s true – sort of. One hard inquiry won’t inflict much damage, and even that’s temporary. What really hurts is applying for multiple lines of credit. Your credit score plunges because it’s obvious you’re looking to take on a lot of new debt – and you might not be able to pay it back.

There’s another kind of credit check, however. When an employer does it, it’s called a “soft inquiry,” because they aren’t checking so they can give you more access to debt. They just want to know how you’re managing your debt.

So, Debra’s credit check won’t affect her credit score. However, her late payments certainly could.

Credit score vs. credit deadlines

Nothing torpedoes your credit score faster than blowing a payment deadline. That’s because the most important factor is called “payment history.” It represents 35 percent of your overall score. The next biggest chunk is how much you owe, at 30 percent.

So, if Debra has missed credit card payments – or even worse, simply missed payments because she’s carrying steep balances – she’s doing poorly on two factors comprising nearly two-thirds of her score. While she can fix this situation herself, it can be a long slog. Sometimes, it’s mathematically impossible.

It’s worth noting here that there’s a difference between being late with a payment and missing it entirely. A late payment results in fees but doesn’t get noted on your credit report. It’s only noted if a payment is late by more than 30 days. In other words, you have to miss an entire billing cycle for missed payments to affect your credit history.


Debra can certainly call each of her creditors and try to negotiate. Credit card companies are well known for letting you slide on a late payment if you’ve otherwise been a good customer. Then again, their sympathy runs out after multiple late payments. And most companies won’t even report one missed payment until it’s more than 60 days late.

Working with a credit counseling agency is often the easiest and most direct route to paying off debts and raising credit scores. The best of these nonprofits are staffed by certified credit counselors who give you a free debt analysis. They’re legally obligated to recommend the best debt solution for you.

Often, that’s called a debt management program, or DMP. You can learn more by clicking the link, but I can explain it best like this: Imagine a DMP is a dinner table, and all your creditors are invited to sit down and dine. You don’t have enough food to feed them all right away, so they agree to eat a little bit at a time.

Your credit counselor works out a menu with all your creditors because the creditors know and trust the agency your counselor works for. That’s why it’s nearly impossible to try your own version of a DMP.

Finding the best credit counseling agency is one of the many things does. Call us for a free consultation.

Get a free consultation to customize the best plan for paying off credit card debt and improving your credit.

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