Signing up for a debt management plan can help you lower your interest rates and get a more affordable monthly payment. If you sign up for this kind of help, you may be worried about what it can do to your credit profile. The effect that it has on your credit will depend on your situation.
No Impact
Simply signing up for a debt management plan will have no direct effect on your credit score. FICO is the company that creates the formula for calculating credit scores and they do not subtract any points from your credit score if you sign-up for this type of program. Enrolling in a debt management plan is seen as taking a necessary step to repay your debts, and you are not punished for it.
Late Payments
Depending on when you sign-up for the program, it could contribute to hurting your credit as a result of a missed payment. When you sign up for this kind of program, you will make one monthly payment to the program and they will pay your creditors for you. If you sign up for the program at the wrong time of the month, you might miss one of the due dates on an account and it could end up hurting your credit a bit.
Helping Your Credit
If you have a large amount of debt that you cannot afford, this kind of program can actually help your credit. If you did not sign up for this program, you might have to settle your debts or go into bankruptcy. You may even be forced to skip payments that are due to your creditors. By signing up for the debt management plan, you may be able to get your finances under control and avoid further problems.
Credit Report Statement
While you are engaged in a debt management plan, it may be difficult for you to obtain additional credit even if you have the same credit score. When you enter into this program, you will be unable to obtain additional credit from credit card companies. On your credit report, creditors will enter a statement that says you are in a debt management plan. This could negatively affect your chances of getting a loan while you are in the program.
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