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People in debt worry what lasting effects a debt management program will have on their credit report. The fact is that in it many cases a person’s credit report can often be improved with the help of credit counselling. Remember, credit counselling is there to help people, not make things worse. Completion of a program means that you have identified problems in your life and dealt with them accordingly.

How debt management works for you

Regular payments to a debt management program shows consistency. Making regular payments is one of the most important things you can do to improve your credit. Often, creditors bring delinquent accounts into current status. We also work with the creditor for you to ensure this happens. If you do have an account in an ‘R9 status’ (not through bankruptcy), it will be shown on your credit report again as regular payments being made. Each creditor has a different process though depending on the type of account.

‘Debt to Income’ Ratio is reduced

How much of your income that is already assigned to paying off debt is a major factor in determining your credit score. It can vary a little, but it is based somewhere between a quarter to a third usually. Consolidation of payments going to the principle debt instead of interest through debt managment makes an immediate impact on your outstanding debt. Your debt will also be paid off years sooner. The lower your debt to income ratio, the better your credit.

Rebuilding Credit while on a Debt Management Program

As members on a debt management program are not allowed unsecured debt until the program is completed, this does not mean they can’t use a secured credit card. Secured credit cards require a small deposit to act as collateral. Secured cards have a credit limit and are also reported to the credit bureaus. Using this wisely (paying off at the end of the month), shows a good R1 rating on your credit report.

Once your debts are paid off, creditors are usually happy to reinstate previous credit privileges.

Members are also allowed to get mortgages and car loans. Although interest may be a little higher, it does mean you have an active, regular payment on your report showing consistency. The FICO credit score also does not take into account that previous members have used a debt management program in the past.