Do Debt Management Programs Affect Your Credit Score? The short answer is yes you can. But the longer answer is that the details matter.
Tell someone you are signing up for a DMP and they will likely tell you not to as it will worsen your credit score. But that may or may not be true.
What happens while you’re on the program and what your credit score looks like now makes a difference.
Debt management programs shouldn’t lower your credit score while:
- Both you and the program make your monthly payments in full and on time
- Creditors are kept informed of changes in income or other life events that could affect repayment ability
- Nothing negative is reported about your debt. (For example, your accounts could be reported as not paid as agreed.)
The latter can be a little tricky. Sometimes creditors will report it is you Not pay as agreed when you are on plan. (Even if they agree to accept the plan.) Chances are, that’s because you’re not paying originally I Agree. When that happens, it can lower your credit score.
You can also add a note to your credit reports stating that you have a payment arrangement with them, or that you are at a credit counseling or DMP. And of course that would be entirely correct.
Debt Management Programs Affect Your Credit Score If …
On the other hand, joining a debt management plan can lower your credit score if any of the following happens:
- You are now paying your creditors less than the full minimum payments
- You can no longer afford your monthly payment at all
- For some reason, even though you are paying for the program, the program does not pay your creditors on time or as agreed
- Your accounts are marked as late or not paying as agreed
- all of your debts will be charged
So just signing up for one DMP shouldn’t affect your score, but what happens? while you’re in it can hurt. Lenders may also give you fewer loans when you are in one as it shows that you need help paying off your debts.
Know what your credit is upfront
When deciding on a debt management program, it is important to know your creditworthiness first. Find out if there are negative points on your credit report and get an idea of your creditworthiness.
Get free copies of your credit reports at AnnualCreditReport.com. You may be able to check your creditworthiness through your bank for free. You can also check Credit Karma for an idea.
That way, when people ask about it in the future, you can explain exactly why something happened.
The central theses
Either way, if you’re wondering if a debt management plan can hurt your creditworthiness, the answer is yes. Whether it become depends on.
Be aware that if something goes wrong, the program has a high chance of worsening your credit score.
On the other hand, some related things can also improve your credit score over time. (For example, settling debts as agreed and reducing high credit card balances.)
A debt management program isn’t the only way to pay off debts. You have options! Check out this helpful information on debt relief for more ideas.
Whatever you decide to do, make sure you understand what you are getting yourself into and if it is in line with your plans.