How a Debt Management Plan will affect your credit rating
As with all reduced payment plan based debt solutions, a debt management plan (DMP) will have an adverse affect on your credit rating. This might result in it being difficult for you to attain access credit facilities in the future and could hinder you from acquiring a mortgage or a personal loan until improved.
The following page will clearly identify the potential affects that a DMP could have on your personal credit rating, so you are fully aware of the consequences to utilising this debt solution.
What is a personal credit rating?
If you make an application to a lender to acquire an unsecured loan, they will need to come to the decision about whether to lend you money by undertaking a personal risk assessment. Creditors utilise a multitude of different methodologies in order to ascertain whether you constitute good risk and will be a reliable debtor, including a credit working which they determine by evaluating the nature of your credit reference file.
Your credit reference file is unique and is held by three different credit reference agencies: Experian, Equifax and Callcredit. All possess data about your financial history, including the manner in which you’ve handled current bank accounts and contractual credit agreements, whether you’ve been evicted from your property or had it repossessed and any individuals you share a monetary connection with. Whenever you make an application for credit facilities, the lender will usually evaluate your credit reference file in order to ascertain the risk you pose when being given access to finance and subsequently use this analysis to determine how much they can realistically afford to lend to you.
Will a reference of your debt management plan be placed on your credit file?
Usually, a debt management plan will appear on your personal credit reference file though there are cases where it can be avoided. Certain lenders will request that a mark is placed onto your file in order to display that you are on a DMP if they accept your offer to enter onto one which would make it difficult for you to obtain new credit whilst on the plan, but might make it easier to access borrowed finance if you complete it successfully and pay off your debt in a responsible and orderly manner. This is because during your debt management plan, a marker of your utilisation of the solution on your credit reference file will suggest to lenders that you are high risk because it implies that you cannot maintain regular loan repayments. However, the advantage of having a marker of your DMP placed onto it at the start of your usage of the measure is that providing you keep up regular payments and adhere to the repayment terms agreed with your creditor, this new found reliability as a debtor will be reflected on your credit file. Whilst this may not ensure that you can access credit facilities after you complete your plan, it is still superior to having a number of unpaid liabilities or debts you sporadically repay referenced on your file.
It is worth noting that a marker of your DMP could remain on your credit reference file for a considerable length of time after you have finished utilising it, which could make it difficult to access borrowed finance for a length of time after your completion date.
Any late payments on unsecured loan agreements will be referenced on your credit file, and even if you manage to acquire a debt management plan, your lenders might choose to place a marker of ‘missed payments’ on your file because the solution consists of you paying a lower sum each month than originally arranged under the initial credit agreement. This again could make it far more difficult to access credit finance in the future, so it is worth taking this into consideration.
How can you evaluate and assess your own credit file?
You should either try to get into contact with or access the onsite pages of one of the three major consumer credit reference agencies. These are: Experian, Equifax or Callcredit. All will have information about your financial history, including the current state of your credit file and you can use the data to ascertain whether there are any false black markers against your name or as a way of gauging which steps you need to take to bolster its credibility.