Money Advice, Debt Advice & Debt Help
How debt management solutions affect your credit rating
Money Advice, Debt Advice & Debt Help

How debt management solutions affect your credit rating

Affect of debt management on your credit rating

If you start a debt management solution such as a Debt Management Plan (DMP), Individual Voluntary Arrangement (IVA), Bankruptcy or a Debt Relief Order (DRO) your ability to get credit will become worse.

If you start a formal solution such as an IVA, Bankruptcy or a DRO this will be specifically recorded on your credit file. However it would be unusual for the fact that you are in a DMP to be specifically registered in this way. Because of this it is a common misconception that if you start a DMP your ability to get credit will be less affected than if you use a more formal debt solution. However this is simply not the case.

If you are in a DMP the fact is that the amount that you will pay to your creditors will be lower each month than your original contractual obligations. As a result of this it is likely that the reduced payments you make will be recorded as missed payments on your credit file. This will happen even if the lower payments are agreed with your creditors.  In addition they are likely to issue default notices against you.

The result will be that other lenders will see that you are unable to repay the debt that you currently owe and will be less likely to offer you more credit in exactly the same way as if you were in an IVA or had declared yourself Bankrupt.

BMD Tip: Any default notices and or records of IVA or Bankruptcy will remain recorded on your credit file for 6 years. During this time these notices will show up if anyone carries out a credit check against you.

If I have debt problems will my credit rating be effected anyway?

If you are struggling with debt and you are no longer able to pay your creditors your credit rating is likely to become worse whether you start a debt management solution or not. The reason for this is that a poor credit rating is not a result of starting a debt management solution. It is the result of not making your agreed payments to your creditors.

For this reason if you are in a position where you are unable to afford to pay your creditors and cannot help but miss your normal payments to them, worrying about your credit rating should not be the primary factor to consider when deciding whether to start a suitable debt management solution or not.