How does Debt Management Plan (DMP) affect credit score?

When entering a DMP you can expect to see negative effects on your credit score. The main reason behind this is that although the DMP is helping you take the steps to regain control of your finances, the agreed terms for the original commitment were not being kept and as a result the creditor will likely report back to the credit agencies that the payment has been missed. This action means that once the commitment has fallen more than 6 months in arrears the creditor can still default the account even though an agreement has been made for reduced payments. 

It is important to understand that the missed payments and defaults are the main cause that your credit score has reduced, not the actual DMP itself as most creditors fail to report your accounts as being in a DMP.

How much your score will be affected will also depend on how many creditors are included within the DMP. The more accounts included will mean the greater the score reduction.

Overall whilst entering into a DMP will have an initial negative impact on your credit score, the long-term benefits of repaying your debts and improving your financial situation will likely outweigh any temporary credit score decrease.

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