How Will a Debt Management Plan Affect My Credit Rating?

September 25, 2014

Luke-Notley small (Custom)A debt management plan can help restructure your repayments to creditors, making it possible for you to work your way out of the red and into the black within your financial restrictions. However, entering into such a plan can affect your credit rating.

Here we discuss how your credit rating may be affected when entering into a debt management plan.

Credit Rating

A debt management plan may appear on your credit reference file (the file used by lenders to determine whether to grant you credit) at the behest of creditors. This could affect your chances of receiving credit whilst it remains on your file as lenders may consider you a risk.

However, if you are making all of your debt management plan repayments in full and on time, this will look better on your credit reference file. Fully paid debt management plan repayments will in fact look better on your credit reference file than unpaid debts you could not afford.

Missed Payments

Missing a debt management plan repayment may be recorded on your credit reference file and would likely serve as a red flag for any lenders you approach for credit. Many lenders would consider you to be too much of a risk to lend credit to and you may find yourself struggling to find a lender.

This makes it incredible important to enter into a debt management plan with a trusted and experienced advisor who can build a repayment scheme in-fitting with your financial situation, decreasing the chance of missed payments.

Checking your Credit

You can access your credit reference file by contacting any of the three Credit Reference Agencies. For a £2.00 fee*, you can check your credit rating and determine whether you have a chance to successfully apply for additional credit.

Other Effects

A damaged credit rating can make it difficult for people on a debt management plan to rent properties or enter into other long-term financial agreements. A landlord may decline your application to rent a property if you have a debt management plan on your credit reference file.

Applications for store cards and other forms of credit or financial agreements may also be impacted upon.

After the Debt Management Plan Concludes

After the conclusion and full repayment of a debt management plan, it may still appear on your credit reference file for up to six years. People who have entered into debt management plans are considered to have defaulted on debts and defaults remain on a credit record for six years.

Making debt management plan repayments on time and in full will ensure it is removed from your credit reference file at the earliest opportunity.

For more information about the benefits and repercussions of entering into a debt management plan, visit InControl’s dedicated page or call one of our experienced advisors on 0800 072 6623.

*price correct at time of publication