You may be wondering how long it will be before your credit rating starts to improve after you have completed your Debt Management Plan (DMP).
As you will probably be aware the fact that you are using this debt solution is not formally recorded on your credit file. However if any of your creditors have issued default notices against you these will remain on your file for 6 years and will therefore make your credit rating poor for this length of time.
If you are still in your Plan after 6 years then even after these notices have come off your file your creditors will continue to record that you are making late or reduced payments. This will continue until your Plan has finished.
For this reason it is unlikely that you will be able to start improving your credit rating until your debts have either been paid or settled in full and your Plan is over. However at this time there are a number of things that you can do to make sure that your credit rating improves as quickly as possible.
Improving Credit Rating after DMP by reviewing any default notices on your Credit File
Once you have finished paying your DMP you should get a copy of your credit file from each of the main credit reference agencies and review any default notices that are listed on your file.
Any default notices that have been issued against you will remain on your file for 6 years from the date they are issued. As such even if you have now finished paying your debts it is possible that any default notices will still remain on your credit file.
Where this is the case there is nothing you can do about this. You simply have to wait until these come off your file automatically after their 6 year term is over and during this time it will be difficult to repair your credit rating completely.
Change the status of settled accounts on your Credit File
After you have finished paying your DMP the lenders whose debts were included should then mark the entry on your credit file to show that you no longer owe money on that account.
This is normally done by marking the entry as “settled in full” if you paid the debt in full or “partially satisfied” or “partially settled” if you made a lump sum offer to settle the debt.
Once the lender has changed the information on the entry, if you make any new credit applications the prospective lender will be able to see that you do not owe any more money on that account.
What if a lender refuses to mark an account as satisfied?
You should first send a letter to the data controller for each creditor informing them that your debt with them has been paid in full or settled in full and requesting that they mark your accordingly. You should normally give then 28 days for each creditor to inform the credit reference agencies to make the change.
Note: To find the address of the data controller (not necessarily the same as customer services) you can search the database on the Information Commissioner’s website. Very often the name of the Data Controller will simply be the name of the lender so you should address your letter to “The Data Controller”.
If the lender persists in not changing the date of their default then you should make a complaint with the Information Commissioner regarding how your information is being handled. The Information Commissioner has the power to force the lender to make the relevant changes. However be warned this could be a slow process.
Improving Credit Rating after DMP by using a credit repair credit card
This may sound strange but in fact a very good way to improve your credit rating is to show that you are actually using a credit facility and managing it responsibly.
Having completed a DMP one of the issues you have is that your credit file will now show little or no history of responsible use of credit. This is almost as bad as having a poor credit history because a lender simply has no idea whether you might be a risk to lend to or not. As such it could well mean that the lender rejects your application.
For this reason you need to start building up your history of using credit responsibly. But how to do this? If you are paying a mortgage or have a mobile phone on contract it will help. However the very best way is with a so called “credit repair credit card”.
Credit Repair credit cards are available from sub-prime lenders such as Vanquis and Aqua. These cards are offered to people with poor credit records or no credit histories. The credit limit will normally be low ranging from £150 up to £3000 and the interest rate relatively high – often 40% plus. However this is not an issue because you are not looking for the card as a method of borrowing.
You simply need to use the card for everyday expenditures such as the weekly shopping and petrol and you must make sure you can afford to pay off in full what you borrow at the end of each month. In that way you are never at risk of paying interest but what you are doing is building a history on your credit file of responsible credit usage which will significantly advance your chances of improving your credit rating overall.
Remember lenders do not just rely on your credit file
If you apply for credit and especially if you are applying for a mortgage, the bank you are applying to will not just consider what is recorded on your credit file. Of course it helps if you have a clean credit file. However lenders will also consider things like whether you owe any other debt, your employment status, how long you have lived at your current address and whether you are a home owner.
If your situation does not meet the lender’s criteria in any of these areas you may be refused credit whether or not your credit rating seems good.
If you are considering applying for a mortgage, one of the key considerations of mortgage lenders is the amount of deposit are you planning pay. In today’s mortgage market it can be very difficult to get a mortgage unless you have at least a ten percent deposit.
Clearly the larger deposit you have the better mortgage terms you will be able to get even if you are still in the process of repairing your credit rating.
Improving your credit rating after DMP may take time
After you have finished your DMP it will normally take some time for your credit rating to improve. If you are waiting for default notices or CCJs to come off your file this might not happen for years depending on when they were issued.
It is important to understand that as soon as your Plan is finished and you are debt free you will not be able to simply borrow again easily. However some borrowing may well be possible.
If you are thinking about a mortgage you also need to remember that you will be extremely restricted by other issues such as the ability to pay a deposit. However on the upside, if it takes you a number of years to get money for a deposit together, by this time many of the negative records that were on your credit file may have been taken off and your mortgage prospects will be even better.
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