How does a Debt Management Plan affect your Credit?
A Debt Management Plan (DMP) can be a great way to take back control of your finances if you have been struggling with problem debt, but the solution does not come without its drawbacks. One issue to bear in mind when considering a DMP – or any debt solution – is how it will affect your credit score. Below we outline the key ways in which using a DMP could affect your credit score, and by extension your access to credit.
- A DMP shows Reduced Monthly Payments
Although DMPs are an informal debt solution, so are not recorded on a public register like an IVA, records of your lowered monthly payments will make it onto your credit file.
- You are unlikely to be granted further Credit during a DMP
Some DMP providers will only provide their services if you agree not to take on further credit, and in any case it is usually best avoided. Your creditors may stop supporting your DMP if you take on more credit, since this suggests that you can afford to make standard repayments, but are only offering them a reduced amount. If you do choose to apply for further credit during the course of a DMP, you will probably only have access to the services of high-interest, short term lenders.
- Your Credit Score will need to be rebuilt once your DMP has finished
Your credit file holds a record of your credit activity for the last six years. This means that evidence of a DMP will not drop off your credit file until six years after your final payment was made. There is plenty you can do to rebuild your credit score once you are debt free:
- Registering on the electoral roll
- Making sure all details on your credit report are correct
- Taking on small amounts of credit
- A Debt Solution is likely to improve your Credit Score in the Long Run
If you have missed payments on your debts, which is likely if you are considering a DMP, it is worth bearing in mind that your credit score is probably quite low as it is. A DMP will negatively affect your credit score, but so will continuing to struggle with problem debt. Using a debt solution to clear this debt can give you a fresh start, and result in a better credit score in the long run.
For more advice about whether a DMP could be the right solution for you, and how it could affect your life, contact Creditfix for impartial and confidential advice by calling 0808 2085 198.