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How does a DMP affect me?

How does a DMP affect your credit score?

Being on a debt management plan (DMP) will almost always affect your credit file and score. This is because you could be paying less than the minimum repayment amount you agreed to when you initially took the debts out. 

What could be put on my credit file during a DMP?

There are several types of information that a creditor could record on your credit file. Your creditors usually make a note on your credit file (every time you miss a DMP payment) or pay less than the minimum on a debt.

It’s understandable why people would want to avoid this happening, but it’s not as serious as it may seem. Let’s take a look at what kind of information a creditor may log on your credit file and why.

Payment history  The payments you’ve made to your debts up to this point will have been logged on your credit file. DMP payments can be less than the normal payment on a debt, so your credit history will show that partial payments are being made towards the debt. This will happen even if a creditor is happy to accept your reduced offer of payment.

'DMP flag' - There isn’t a specific place in your credit report to register that you’re on a DMP.  But each account included in your DMP can have a marker added to it that shows repayments are being made through a DMP. A creditor can only add a DMP marker to your debt if they accept your offer of payment.

Defaults - If your creditor defaults your account they’ll add details of the default to your credit history. This will stay on file for six years from the date it was entered. You may not receive a default for every debt on a DMP but it’s very common for this to happen.

Court judgments and decrees - If you receive a CCJ  (England & Wales), a decree (Scotland) or a money judgment (Northern Ireland), details of this will also be added to your credit history for six years.

How long will a DMP stay on my credit history?

A DMP isn’t specifically registered on your credit file but the reduced payments could impact on a few different areas of your credit file. Details of court action, defaults or missed payments will be removed six years from the date it happened, even if the debt hasn’t been fully repaid.

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Would my DMP stop me getting a mortgage or tenancy?

Renting – Starting a new tenancy while you’re on a DMP may be more difficult because some landlords will want to check your credit file. They may be less willing to accept you as a tenant if you have negative information such as missed payments or defaults on your credit file. Landlords can only access your credit file with your permission, and you’ll be asked to sign a form giving your consent first.

Smaller private landlords and letting agents won’t always use information from credit reference agencies. Some will only check public records. They don’t need your permission to do this, but the information they can find will only tell them if you have a recent history of court action or insolvency. It won’t tell them about defaults or missed payments. 

Not all landlords perform credit checks. Social landlords, such as local authorities and housing associations, are unlikely to look at your credit history.

Some private landlords or letting agents may still be willing to accept you as a tenant even if you have a poor credit history. However, they may ask you to provide a guarantor with a good credit rating, or a pay a larger deposit or rent in advance.

Getting a mortgage - If you don’t currently own a property then it will be more difficult to get a new mortgage while on a DMP. The outstanding debts you have will be considered as a negative factor in a mortgage application and information registered on your credit file about your debts could count against you. Another significant barrier will be not having a lump sum of money available to put down as a deposit.

Remortgaging - It may be harder to remortgage when on a DMP but there should be some options available. If your mortgage deal expires then your current mortgage lender will usually move you or offer their ’standard variable rate‘. This isn’t likely to be the best deal on the market, but it’ll mean your mortgage can continue with your current provider.

Whether you’ll be able to obtain a new mortgage deal will depend on a variety of factors. The amount of negative information recorded against your credit history will be taken into account, but the amount of equity you have in your property and your current income will also be used to decide if a lender is willing to offer you a new mortgage.

We strongly recommend getting qualified mortgage advice if you need help remortgaging while you’re on a DMP. It’s also worth finding out how a DMP may affect your mortgage, rent or tenancy, even if you’re up to date with the payments on these. 

Are utilities, insurance or phone contracts affected by a DMP?

Car insurance - Paying for car insurance by monthly instalments may involve a credit check because you’ll be signing a credit agreement. Because car insurance can be cancelled if you don’t keep up with the payments, lenders offering these credit agreements are less likely to refuse you than other types of debt.

While it’s not guaranteed you’ll pass a credit check while you’re on a DMP, very few of our clients have problems getting car insurance. However, you may be charged a higher rate of interest because of your credit history, so your monthly payments could be higher.

Mobile phone contracts - If you’re on a DMP it’s a good idea to keep your mobile phone costs as low as possible. New mobile phone contracts will usually involve a credit check and there’s a chance you’ll be rejected if you’re applying for a contract that includes an expensive phone and high monthly cost. If you’re looking at cheaper handsets with lower costs you may have a better chance of being approved.

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Utility bills - Some utility companies may credit check you. For example, this might happen if you apply to change from a pre-payment (‘pay as you go’) meter to a credit meter where you can pay monthly or quarterly.

Can I get credit while I’m on a DMP?

You shouldn’t take out any further credit while you’re trying to repay your existing debts through a DMP.  Doing so  could be a “breach” of your DMP agreement, as you’re not in a position to make the minimum payments on the debts you already have.

Your budget should account for all the regular costs that are likely to crop up while on a DMP, so hopefully there’ll be no need to borrow money to cover these.

If you have an unexpected high expense, you may feel you need to borrow money. We recommend you speak to your DMP provider before taking on any more debt, so they can check if there any realistic alternatives, for example reducing your DMP payments or applying for a grant to help you.

If you do need to take out a new credit agreement the lender will run a credit check, and because of the impact on your credit file of making reduced payments, you may be charged a higher interest rate or refused credit altogether

If you're on a DMP don’t consider a consolidation loan to try and pay your debts off earlier. We don't recommend this type of borrowing while you’re on a debt solution.

Can my DMP affect the people that I live with?

Your credit history is likely to be affected by being on a DMP. However, it‘ll not affect the people that you live with unless you have joint financial products or joint debts. This would be something like a loan, bank account or household bills that are in joint names.

If this happens there’ll be a ’financial association' linking your credit files. This means your record of making reduced payments may affect the other person’s credit file and their ability to get credit.

Improving my credit score once a DMP has repaid my debt

Your credit history will start to look a lot better once you’ve repaid your debts. There may still be some negative information about your debts but anyone checking your credit file will see that despite your previous difficulties, you’re now debt free.

All negative information such as details of missed payments or court action will be removed after six years, even if the debt’s not fully repaid.  And if an account has defaulted, the debt will be removed entirely from your credit file six years after the default even if it’s not fully repaid.

We’ve written an article about how to improve your credit file after a DMP on our blog.

You may be considering settling your debts earlier than you’re expected to at the moment. If you receive a lump sum of money, your creditors may negotiate full and final settlement figures on your debts with you. Whether settling your debts is your best option is based on several factors, and we recommend you get advice from a settlements team first.

How do I check my credit file?

There are three main credit reference agencies in the UK and each will allow you to access the credit history they hold on you. You can access your credit report online by going to the websites for any of these organisations.

All three will supply you with a copy of your credit file for a fee of £2, but you may be able to get it free.

  • Equifax will allow you to access your credit report for free, but only as a trial when signing up to their paid service.
  • Experian has a ‘free forever’ service that lets you check your credit file without paying a fee.
  • Call Credit has a service called Noddle which will allow you to access your credit history for free without time limits.

Please bear in mind that some creditors may update your credit file with one agency but not the others. For this reason, it’s always a good idea to check your credit score with all three agencies, not just one.

Get some expert help and advice

If you’re struggling to repay your debts use our online Debt Remedy tool or call our Helpline (free from all landlines and mobiles). 

We'll provide you with a budget and debt solution that’s specifically tailored to your situation, so you know you’re getting the right advice.

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“I wish to thank your staff for all the great help they gave me when I was in so much debt.
They were a pillar of support to me.” (Leslie, Essex)

Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

*This is the average rating of our service based on the StepChange reviews on Feefo by DMP and DRO clients three months into their solution.

© StepChange Debt Charity 2017