How will my Debt Management Plan affect my Credit Score?

Greetings once again from the land of debt. Today I am writing about the effect my Debt Management Plan will have on my credit rating and to be honest, it isn’t going to be good.

As I mentioned in my previous post – a plan to get out of debt, I am using a Debt Management Plan as a way to start sorting out my debt problems. This will simplify things for me in that I will make one payment and this will be shared by StepChange Debt Charity amongst all of my creditors. It also means that (assuming all my creditors suspend interest and charges), that I know when I will be debt free which at the time of writing this will be eight years and a few months.

What does it mean for my Credit Score?

Short answer, it will decrease quite a lot. It is already on a downward spiral due to arrears on my accounts and some missed payments. However let’s think about this, it is a good thing my credit score does decrease as what business would I have in taking out any further credit? The answer is none. It will only make things worse.

If I want a mortgage then that won’t happen and at this point a mortgage seems unlikely anyway due to the deposit required and the cost so this will have to wait. If one of my creditors decides to take me to court I could end up with a CCJ. I hope it doesn’t come to this but I can only wait and see.

Other things will be late payment markers and reporting of overlimit for credit cards and arrears information. Ultimately this will reduce my credit score considerably which will make getting credit in the future very difficult and very expensive.

I expect a number of defaults will also be registered, these will have a devastating impact on my credit score.

How long will this last?

I am looking at six years from the date of the last default before things will start to get better. In the case where an arrangement to pay is marked on my credit file, this could be even longer as it will be six years from the date the account is settled before information around that is removed. I don’t want to think about that at the moment and perhaps six months from now I will have a better idea.

Six years is a long time but what choice do I have? As I talked about in my previous post, I have been in this situation a couple of times now, I wish I wasn’t but can’t change that now. Just got to accept it for what it is, knuckle down and move forwards.

Why is your Credit Score Important?

Your credit score can determine a number of things such as: –

• The cost of any credit you take out, the lower your score the more expensive it can be.
• Whether you will be approved for credit. Some creditors will not lend to you as you would be considered too high a risk.
• Some jobs credit check you. For example if you worked for a Bank.

When you have a lower credit score because you are in a Debt Management Plan for example, then credit is something you need to live without. I say this because even if you can get credit, it will be so expensive that it is likely you will end up in trouble again. I realise the irony in someone like myself saying this (getting into debt trouble three times) but just because I make mistakes doesn’t mean you have to.

In fact I can say this from experience, part of my downfall the second time I got into debt was a build up of high interest and expensive credit card debt. It became unmanageable and ultimately I buckled and admitted defeat.

The first time I got into debt was Payday Loans (remember them) if you wanted to know that.

How do you improve your Credit Score?

Time. It is as simple as time plus repaying your debt. In the future you may get lucky asking for defaults to be removed and there are companies promising to do this for you for a fee. My advice here is run. There are no shortcuts, you can sometimes be lucky but in most cases you got to dig in and wait it out.

Repaying your debts will put you on a good path but until the adverse data such as any defaults, County Court Judgments and late payments are removed things aren’t going to be great. I am sorry to say this but again from my own experience this seems to be true.

Instead of focussing on your credit score you should focus on solving your debt problems and the other stuff will come good as a result of that.

Checking your Credit Score?

If you want to check your credit score then you can do that for free at: –

I am not paid to say this, I use both of the above so just sharing this information. Thanks for reading and I will post again soon about how things are going with my debt.