How Does a Credit Arrangement Affect Your Credit?

Credit arrangements, such as debt restructuring and debt arrangements, are plans your creditor may offer you if you are having issues meeting your financial obligations. The creditor is not obligated to create an arrangement for you, but in many cases the creditor prefers to work with you instead of losing the account to default entirely. Another credit arrangement, a debt management plan, is administered through a third-party company which works with your creditors directly to make a debt payment plan you can keep up with. Credit effects from credit arrangements depend on the type of arrangement you are involved in.

Debt Management Plan

A debt management plan is a plan you set up with a debt management company. The company negotiates favorable terms with your creditors to enter you in a repayment program. You pay the debt management company directly. The company distributes your payments to each of the creditors for an agreed-on rate. You receive a notation on each account on your credit report included in a debt management plan, but you do not receive a direct negative credit mark from this. Generally you are not allowed to apply for new credit accounts while under a debt management plan, so you can get denied if a creditor sees that notation on your report.

Debt Restructuring

A lender may restructure your debt completely if you are having problems meeting your debt obligations. A debt restructure may change your loan, or the lender may create a new loan entirely for the situation, similar to a refinancing process. The lender does not have to offer you a restructured debt, although it may in the interest of keeping your account around instead of going through the trouble of collecting on a delinquent account.

Debt Arrangement Schemes

A debt arrangement scheme is used in several countries for debt management programs. The program helps consumers avoid bankruptcy if at all possible, mainly by providing additional time to meet debt obligations. The debt arrangement program does convey a negative mark on the debtor's credit report but stops other creditors from adding late payments, charge-offs and other negative information on the report. As a result, you have only one negative mark and not many at once.

Debt Consolidation Loan

A debt consolidation loan is a loan you take out through a lender, such as your bank or a credit union, for the express purpose of paying off all of your smaller debts and making one single debt repayment. You may receive a negative credit mark for the inquiry used by the lender when checking if you were eligible for the loan. Adding a new account can have a positive or negative effect on your credit score depending on the rest of your credit profile, but the new account effect is temporary and should go away after a few months. A debt consolidation loan often has a lower overall interest rate than the average of your credit accounts, and you have the advantage of making a single payment instead of many smaller payments to different companies.