Debt Management Programs

For the typical debtor that's in need of it, a debt management program will improve their credit rating. Just remember - debt management programs may improve credit ratings but they can't change any past credit history.

Most creditors will report delinquent accounts as "current" after receiving up to three consecutive payments through the debt management agency. While the process and time frame does vary with each creditor and type of account, this "re-age(ing)" of accounts can substantially help a person credit rating. Some creditors don't re-age accounts and may continue to report them delinquent but this is most often done in personal loans and lines of credit. 

Debt management program clients should assume that all of their accounts may run up to one month late during the starting phase of the program. This will affect even those accounts that are current upon enrollment. This, coupled with many lender's requirements of three consecutive payments through the DMP, may lead to a "past due" status on your account for up to four months and late fees may be assessed during this period. In most cases, though, creditors have a system in place to make sure this "past due" status is not indefinite and will return the account status to current within four months of enrollment.

If you enroll in a DMP you should expect that your credit report will show some "late payments" during the initial phase of the program. In some cases the accounts may not be "re-aged". In which case, you should pay the past due amount as required in order to get your account reported as "current".

Some lenders may report that your accounts were paid by a debt management, credit counseling or "under arrangement". These reports may be bad for accounts with "A-1" status but they can only have positive effects on clients with delinquent accounts. In the future this may be considered derogatory by some lenders but most consider it a sign of sincere concern and desire to satisfy past debts.

Debt management agencies do not report to credit bureaus and can not have bad credit information removed from your file. Only your lenders can make reports and only the reporting lender can have it removed. Fortunately, if a creditor fails to respond to an inquiry regarding an entry that they reported the credit reporting agency must remove it.

Since most debt management agencies deal with hundreds of creditors, each with their own policies and procedures, they can't control who may or may not report on a client's account. This means there is not guarantee that there will be changes in your credit standing just by enrolling in a debt management program. 

Clients who enroll in a debt management program and remain in good standing with all of their creditors while on the program should expect that their credit will improve over time. Once all derogatory information is outdated (and deleted) and only the good credit obtained by maintaining a perfect payment history a client can even obtain an A-1 status, although you don't have to have perfect credit to obtain credit or financing.

Those consumers with good credit but that are experience financial hardships and are considering enrollment in a debt management program should not (as stated before) that their accounts may run "past due". This means that there will be a negative impact on an otherwise good credit standing.

However, it's important to make the decision to enroll in a debt management program with more than your current credit rating in mind. Instead, you should consider how enrollment may affect your future credit compared with what may happen to your future credit if you don't take corrective action now.

Debt management programs are only one way of managing debt issues. You should thoroughly review all options before choosing one. As long as you are trying to meet your obligations, there is a way out of the circle of debt, worry, and financial hardships.