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
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.
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.
Does the debt relief program affect your credit score? ›
Debt relief services may have a negative impact on your credit score, but that impact may not be as big as you think — and in some cases, it can help your credit. How these services impact your credit depends on the debt relief option you choose.
How does debt restructuring affect your credit rating? ›
Can damage your credit: Restructuring debt can negatively affect your credit in many ways, especially since you're no longer paying your account as agreed. If your lender marks the debt as settled — meaning that it was paid in full, but for less than you originally owed — it can impact your score for years to come.
Does debt recovery affect credit rating? ›
Debt settlement typically has a negative impact on your credit score. The exact impact depends on factors like the current condition of your credit, the reporting practices of your creditors, the size of the debts being settled, and whether your other debts are in good standing.
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.
What happens after 6 years on a DMP? ›
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.
How long does a debt management plan affect your credit rating? ›
The debts associated with your DMP may still stay listed on your credit report until the six-year period is up from when they were added – if they have defaulted or there are CCJs associated with them, for example – but the marker for your DMP will be removed.
How long does debt restructuring hurt your credit? ›
As with most other negative credit report entries, settled accounts stay on your credit reports for seven years.
How long does it take to improve credit score after debt settlement? ›
There's no guarantee that paying off debt will help your scores, and doing so can actually cause scores to dip temporarily at first. In general, however, you could see an improvement in your credit as soon as one or two months after you pay off the debt. Here's what to expect as you pay off debt.
A DMP may be a good option if the following apply to you: you can afford your living costs and have a way to deal with any priority debts, but you're struggling to keep up with your credit cards and loans. you'd like someone to deal with your creditors for you. making one set monthly payment will help you to budget.
Can I get a mortgage with a DMP? ›
Yes, it is possible to get a mortgage while you have a debt management plan, but it may be more challenging. A debt management plan (DMP) is an informal agreement between you and your creditors to pay back your debts at a reduced rate over a longer period of time.
Can I get a loan while on a debt management plan? ›
It's probably against the terms of your debt management plan (DMP) to take out a loan without speaking to your DMP provider first. This is because - although it may be possible to get a loan during a DMP - it's not usually a good idea. Any spare income you have will be going towards paying off your existing debts.
How can I manage my debt without affecting my credit score? ›
How to Minimize the Impact Debt Consolidation Has on Your Credit
- Consider keeping old credit cards open. ...
- Pay off a balance transfer quickly. ...
- Avoid applying for multiple loans or credit cards. ...
- Pay on time.
If you're currently in a DMP, you might also have late payments or defaults on your file, which can affect a lender's decision to grant you a mortgage.
Can you get a credit card while on a DMP? ›
Although you can obtain credit, it is important to know that it will be significantly more difficult to access due to the impact a DMP has on your credit file. This may mean that the options available are high interest options, that could leave you in a challenging position once more.
Does debt consolidation help or hurt your credit? ›
Debt consolidation can negatively impact your credit score. Any debt consolidation method you use will have the creditor or lender pulling your credit score, leading to a hard inquiry on your credit report. This inquiry will decrease your credit score by a few points. However, this credit score decline is temporary.
