5 October 2012
Debt management is an agreement to repay unsecured debts at a more affordable pace. Lenders might also agree to freeze interest and charges, and shouldn't take legal recovery action as long as you stick to the agreement.
This kind of forbearance can be really helpful for people who can't afford their debt repayments anymore. While a debt management plan itself isn't recorded on your credit report, reduced repayments are, and this will affect your credit score.
Debt management is not an overnight solution - unfortunately there are no quick fixes for a debt problem. A debt management plan could last several years, and so could the damage to your credit score.
However, entering a debt management plan shows an intention to repay an outstanding debt in full. Furthermore, it means that in a few years' time those debts should be cleared and you will be back in control of your finances.
How long does a default stay on a credit record?
People who enter into debt management plans have often 'defaulted' on debts - in other words, they've received a formal notice from their lenders for missing payments.
A default remains
on a credit record for six years. While it's on there, other lenders might not want to lend you money, or they might charge a higher interest rate for credit. A default on your credit record indicates you have had problems repaying debt in the past - and this is a warning to other lenders.
How long do lower payments stay on a credit report?
Lower (or missed) payments are different. According to Experian, when you begin making lower payments, a 'flag' is placed on your credit record.
Your payments remain visible on your credit record for six years, from the date of your final payment.
However, once you have made your final payment, that debt is marked as 'settled' (non-defaults) or 'satisfied' (defaults), so lenders would be able to see that you have repaid your debts in full.
It is possible to repair a credit score over time - the damage is never permanent. In general, lenders are more concerned with your credit behaviour in your recent history - so if you are able to manage credit well for a while, they are more likely to view you favourably when you apply for further credit.