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Will a Debt Management Plan affect my credit rating?
Being in debt means you have opened many credit lines and unable to repay those on time itself will hurt your credit score. As you are unable to pay the agreed amount on time, your creditors could report to credit bureau about your payments style. Hence it is very important to take care off the payments reach on time other wise it will hurt your credit score.
The most important thing that one must recognize is that you are facing problem in repaying the debt well before you start missing payments and find a solution to the problem.
I often encounter with a question “will debt management program hurt my credit score?” for this reason I thought of discussing in this article.
Before I start answering this I would like you to look into few things? Have you already defaulted on your monthly repayments? If yes, then it would already impact your credit score. In this case, choosing a debt management program meaning you are making an arrangement with lenders to repay the debt within the predetermined time. As you are making an arrangement to clear the debt that will not impact your credit score further.
If you had not yet started defaulting on monthly repayments, yes it will have impact on your credit report as the debt management company will start the negotiation process with your lender to reduce the overall debt or terms like interest rate and term of the debt.
If the debt management company tries to reduce the debt, then it may ask you default on monthly payments for at least 3 to 6 months, which will have negative impact on your credit score because that will be reported on your credit report as “default”.
The other instance which may also impact your credit score further is selection of the wrong company to manage your debt. Choosing a wrong company will not help you to get out of debt but in turn will drag into further debt.
There are many companies in the market that come up making offers to wipe out your debt within no time. Do you think it is really possible to wipe out all the debt within no time? No, it is next to impossible. Beware of the offers that too good to believe and ask you to miss payments to creditors, so that they will be more willing to negotiate the terms rather than not being paid in full.
Before you proceed further remember that your decision to miss payments will have a significant impact on your credit history and therefore on your credit score.
Hence, choosing a reputable debt consolidation company that manages debt by negotiating the terms of the debt and work with your creditors will help you get out of debt with out any negative impact on your credit score. This is important because a reputable company tries to negotiate the terms without asking you to miss the payments and hence your credit account status is reported as current.
Note: Bottom line is that debt consolidation or debt management plan may have a negative affect on your credit score in some cases.
Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice
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