If you're in a debt management plan (DMP), it may have an impact on your credit rating. This could mean you find it more difficult to get credit in the future.
This page explains what you need to know about how a DMP could affect your credit rating.
What is your credit rating?
When you apply for a loan or other type of credit, the lender has to decide whether or not to lend to you. Creditors use different things to help them decide whether or not you are a good risk, including a credit rating they work out from your credit reference file.
Your credit reference file is held by the three credit reference agencies and contains information about you, including how you've managed existing bank accounts and credit commitments, whether you've ever had your home repossessed and people you're financially linked to. When you apply for credit, the credit provider will search your credit reference file to see how much of a risk it is to lend to you.
Will a DMP show up on your credit file?
Your DMP may show up on your credit reference file. Some creditors may ask for a note to be put on your file to say that you have a DMP. This would reduce your chances of getting credit if you applied for it while on your DMP, as it would show you've had trouble keeping up with repayments. However, if you kept up with your DMP repayments, the DMP would look better on your credit reference file than unpaid debts or debts that you were only making infrequent payments towards.
The note may also stay on your file for a time after the DMP has ended, so you may struggle to get credit for some time afterwards.
If you miss payments on a credit debt, this is also recorded on your credit reference file. Even if you're in a DMP, your creditors may still record that you've missed payments, as you'll be paying less than you agreed to when you took out the original credit agreement. This will mean you could find it harder to get credit while you're making reduced payments and for some time afterwards.
How can you check your credit file?
You can check what information the credit reference agencies are holding about you and change any incorrect information.
Next steps
FAQs
Although enrollment in a debt management plan doesn't directly impact one's credit score, various aspects of the program — such as timely payments, account closures, reduction in amounts owed, and changes in credit utilization rates — might influence the score in both negative and positive ways.
Does a debt management plan affect credit rating? ›
If your DMP involves you making repayments less than the amount originally agreed with lenders, then it will affect your credit score. This means you could find it harder to get credit while making reduced payments.
How much does a debt relief program hurt your credit? ›
Debt management plans themselves do not affect your credit scores, but closing accounts can hurt your scores. Once you've completed the plan, you can apply for credit again. Missing payments can knock you out of the plan, though.
Does Pds debt affect credit score? ›
Absolutely not! We are able evaluate your eligibility without any type of credit pull or affect to your credit.
How does debt impact your credit score? ›
A credit score can range from 300 to 900, with higher numbers indicating a better score. Approximately 35% of the score is based on payment history. Approximately 30% of the score is based on outstanding debt. A good guide is to keep your credit card balances at 25% or less of their credit limits.
How long will a DMP affect my credit rating? ›
The accounts you are repaying your DMP through will already be listed on your credit report, and once the DMP is complete the marker will be removed and the accounts themselves will be marked as closed – they will then remain listed for six years from the settled date.
What is a disadvantage of a debt management plan? ›
The cons of Debt Management Plans
Creditors require the accounts to be closed in order to be put on a DMP. This can slightly lower your credit score, because closing multiple accounts at the same time affects the length of your credit history.
Can I buy a house after debt settlement? ›
How Long After a Debt Settlement Can You Buy a House? There's no set timeline for how long it takes to get a mortgage after debt settlement. Your ability to qualify for a mortgage will depend on how well you meet the lender's requirements on the issues raised above (credit score, DTI, employment and down payment).
Is it worth it to use a debt relief program? ›
Debt relief plans can help make your payments more manageable, but they're not right for everyone. It's important for you to understand how each plan or program works and how debt relief can affect your finances.
What debt relief does not affect your credit score? ›
Debt consolidation describes a basket of methods to reduce and eliminate what a consumer owes. These methods won't crush your credit score: Consolidation loans from a bank, credit union, or online debt consolidation lender. Balance transfer(s) to a new low- or zero-rate credit card.
Your Bank Account & A Debt Management Plan
In conclusion, a Debt Management Plan (DMP) does not directly affect your bank account. You can usually continue using your current bank account as usual when you enter a DMP providing that you do not wish to include a debt on your DMP that is with your bank account provider.
How long does it take to rebuild credit after a debt management plan? ›
Debt settlement will remain on your credit report for seven years. This means that for those seven years, your settled accounts will affect your creditworthiness. Lenders usually look at your recent payment history.
Which debt affects credit score the most? ›
1. Payment History: 35% Your payment history carries the most weight in factors that affect your credit score, because it reveals whether you have a history of repaying funds that are loaned to you.
Is it better to settle debt or pay in full? ›
It's better to pay off a debt in full than settle when possible. This will look better on your credit report and potentially help your score recover faster. Debt settlement is still a good option if you can't fully pay off your past-due debt.
Can I still use my credit card after debt settlement? ›
The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.
Will a debt management plan affect me getting a mortgage? ›
As credit scores are usually the first thing a lender will look at when deciding whether or not to lend you money, it means that entering into a DMP in order to repay your debts might make it harder for you to get a mortgage.
What happens after 6 years on a debt management plan? ›
After 6 years, the negative information recorded on your credit file will start to disappear. However, this doesn't mean you're automatically debt-free or that your credit score will immediately improve. It's important to continue making your DMP payments and practicing good financial management.
Can you get a credit card while on a DMP? ›
It is possible to obtain a credit card while on a debt management plan, although it is a high-risk decision and one that isn't advisable in the majority of cases.
