Debt management companies help borrowers pay down credit accounts by negotiating with the credit companies to lower terms, reduce fees and consolidate the credit accounts so only one payment needs to be made per month. Debt management can appear on your credit report, although the specific effects vary.
Credit Report Basics
Your credit report contains information about your credit accounts, such as credit cards and mortgages. The credit report also has public records and collections for negative marks. The credit report information comes from your creditors, courts and collection agencies. When a lender looks at a credit report, he examines your debt level, the number of accounts you have and the negative marks that exist on your credit report.
Debt Management
Debt management companies are third party companies that act as a go-between for the creditor and debtor. The debt management company is paid by the debtor with a single monthly payment, which then goes to the creditors. Debt management companies create a long-term debt repayment plan, usually three to four years, and may also negotiate more favorable terms with the creditors.
Credit Report Impact
Your credit report is not directly impacted negatively by a mark that an account is under a debt management program. However, each account under a debt management program does have a notation indicating that it is being paid under this program. A manual review of your credit report may lead creditors to not offer you credit because of this notation, although debt management plans may prohibit you from applying for new credit until you are debt-free.
Prior Impact
Actions that a debtor takes prior to entering a debt management plan are what usually have a negative effect on credit. Debtors may wait until they have multiple late payments on the credit report, collections or even judgments before entering the program. These negative credit marks have a large impact on your credit report.
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