Does a Repayment Plan With a Credit Card Company Show on My Credit Report?

When your credit card debt has gotten out of control, coming to an agreement on a repayment plan can be a major load off your mind. But should it be? Although a repayment plan is an important step in protecting your credit in the future, not all payment plans are created equal. In some cases, agreeing to a repayment plan could ding your credit score.

The Dealmakers

When you make your repayment plan and who you make it with has an enormous impact on whether or not the plan shows up on your credit report. If you make the deal with the credit card company directly before your account is in serious arrears, your late payments will be reflected on your credit report, but your repayment plan usually will not. Instead, your account will show as current after the late payments. However, payment plans made with a collection agency or via a debt management company usually do appear on your credit report and will negatively impact your credit score. The specific impact on your score depends on a number of factors, including your score before the repayment plan and the size of your debt.

Understanding the Terms

Deals made with the credit card company may not usually be reported to the credit bureaus while repayment plans made with collection agencies and debt management companies are, but these are not hard and fast rules. The most important thing you can do to protect your credit is to ensure you understand the terms of the repayment plan. Before you make an agreement, ask if the plan will be reported to the credit bureaus. Get the answer in writing and monitor your credit report to ensure the company is adhering to its agreement.

Settlements

If you make a repayment agreement for less than the amount owed on the card, you are making a settlement agreement. These agreements are reported to the credit bureaus, unless you negotiate otherwise with the credit card company, and they have serious effects on your credit. Do not confuse a settlement agreement with a repayment agreement in which you pay off your debt in full.

Is It Worth It?

Should you enter into a repayment agreement even if it is going to hurt your credit? According to Consumer Reports, taking a short term hit on your credit score is well worth it, since it will protect you from biggest credit killers, like long-term delinquencies, settlements and even bankruptcy. As you pay down your debt and get back on top of your finances, your credit score will recover from the repayment plan ding.