Enrollment in a Debt Management Program —
What affect will it have on your credit report?
—Article by Daniel Gelinas
What affect enrollment in a Debt Management Program will have on your credit report is entirely in prospective with your current credit rating. For the typical debtor in need of a debt management program, enrollment "improves" their credit report.
For consumers enrolled in an approved Debt Management Program, most creditors report delinquent accounts as "current" after receiving one to three consecutive payments as arranged by and paid through the debt management agency. The process and time frame varies with each creditor and type of account. Some creditors, however, do not re-age accounts and may continue or begin to report accounts as delinquent. This is more often true on personal loans, note accounts and lines of credit.
Note: Although enrollment in a Debt Management Program may improve your credit rating, it will not change your "past" credit history.
It is important to note that clients must assume that all accounts may run at least one month late during the initial phase of the program. This occurs even on those accounts that are current upon enrollment. Also, due to some creditors' requirement of waiting until three consecutive payments as paid through the agency prior to re-aging the account, a "past due" status may occur for up to four months and late fees may also be assessed during this period. Fortunately, in most cases, creditors have a cure system in place so that this initial past due status is not indefinite and in most cases is returned to a current status within one to four months of enrollment.
Therefore, for the purpose of evaluating how the program will effect your credit report, clients should expect that their credit report may show late payments during the initial phase of the program. If after four months in the program an account has not been brought current, either the creditor inadvertently did not perform the required update to the client's account, or the creditor simply does not have or offer a re-aging or cure program. In such event, the client would have to pay the past due amount required in order that the account be reported as current. In that the client will continue to receive their statements from their creditors, except perhaps on accounts that have been charged off, the client has full control over this aspect of the program and is always welcome to pay any required minimum due in order to bring the account in good standing, and thus, improve credit reporting.
Some creditors may report accounts as being paid by debt management, credit counseling or under arrangement. Such a report may be considered derogatory on accounts with an "A-1" status, however, on delinquent accounts it may be considered more favorable than being reported as delinquent or past due. How this is regarded by potential lenders in the future is entirely dependent on the client's financial situation at that time and the particular views of the lender. While some lenders may regard it as derogatory, others may regard it as a sincere concern and professional means of satisfying the client's financial obligations.
Always remember, there is no substitute for perfect credit!
It is important to understand that consumer credit counseling and debt management agencies DO NOT report to credit reporting agencies, nor can they remove derogatory information from your credit file. Only your creditors can make these reports and only the reporting creditor can have it removed. Note, however, that if a creditor fails to respond appropriately to an inquiry regarding an entry that they reported, by law, the credit reporting agency MUST remove it.
Consumer credit counseling and debt management agencies typically deal with hundreds of creditors nationwide, each creditor maintaining their own policies and procedures. These agencies have no control over how creditors may elect to report a client's account, therefore, no guarantees should ever be made in this regard. In addition, consumer credit counseling and debt management agencies should not make any guarantee regarding a client's ability to obtain credit and financing in the future. Agencies making such guarantees and claims should be looked upon with a leery eye.
Consumers with a derogatory credit report, who enroll in a debt management program and remain in good standing with ALL of their creditors while in the program, should expect that their credit report will improve over time. Once all derogatory information is outdated, and thus deleted from their report, by maintaining a perfect credit history their credit report may eventually be regarded a having A-1 status. Depending on the consumer's financial condition and other factors, credit and financing may once again be granted. It is important to note, however, that credit and financing is often granted to consumers with less than excellent or good credit. Interest rates and fees, however, are adjusted accordingly.
Consumers with an excellent or good credit rating, but who are experiencing financial hardship and considering enrollment in a debt management program, must understand the impact that enrollment may have on their credit report. As noted above, it is highly likely that some or all of their accounts may initially run past due. This could negatively impact their otherwise good credit standing.
Saying this, however, it is important to weigh not only how enrollment in a debt management program will affect your credit history in comparison to your "current" credit rating, but also how enrollment will affect your credit history in comparison to what your "future" credit rating might be if you don't take corrective action!
The Center For Debt Management™ often hear applicants proudly boast how they have an "excellent" credit rating. Of course, they're concerned about having any derogatory reports on it. This is certainly a prudent attitude to have. In analyzing the financial profile of many of these consumers, however, it becomes very evident of their method of maintaining the "excellent" status. Generally, they are either taking "cash advances" or otherwise "robing Peter to pay Paul," while continually digging themselves deeper in debt. Sooner or later, these consumers must face reality and come to terms with their financial dilemma.
If they fail to take corrective action now, even if it means lowering their current credit rating in the short term, it is very likely that in the near future it will become impossible to meet their financial obligations. No one has unlimited access to credit and sooner or later, Peter is bound to run out of money! Ultimately, they not only totally ruin their credit rating, but for many, are forced into bankruptcy. While a debt management program can provide debt relief and a road to recovery, unfortunately, there is a "point of no return" where enrollment in a program will not prove beneficial to some consumers.
Whether enrollment in a debt management program is right for you depends on your particular circumstances. The Center For Debt Management™ takes extraordinary measures to present both the pros and cons of enrollment. Regardless whether a consumer enrolls in a debt management program offered through our agency, or a similar agency, it is the creditors who ultimately decides whether or not to issue a report and how they will status the account. It should be noted, however, that any consumer may ask a creditor to remove derogatory information from their report. Although most creditors will not remove accurate information unless it is in their best interest to do so.
Note: Under Federal Law, consumers have a legal right to add a brief statement to their credit report to clarify or explain their position.
We encourage all applicants of the debt management program offered through our agency to honestly analyze their financial condition and then to consider the consequences and benefits of enrollment. For most consumers who are overburdened with debt, the benefits that the program offers easily outweighs the resulting effect it has on one's current credit rating, or on what one's credit rating might be in the future if they fail to take corrective action.
If, after reviewing this information, you decide that maintaining an excellent credit history remains your number one concern, then a debt management program may not be the right choice for you. Are there other alternatives for consumers experiencing financial hardship? Yes. The ideal method of resolving one's financial troubles is to increase one's income. To assist consumers in this regard The Center For Debt Management™ has established the Income Resource Center.™ In addition, cutting unnecessary expenses can play a major role in regaining financial strength. To assist consumers in this regard, we have established a sector called Cutting Expenses and Fighting Inflation.™
Consumers with equity in their home or other assets may want to consider refinancing or a debt consolidation loan. It is important that you understand that a debt consolidation loan is very different than debt consolidation provided through a debt management program. For more detailed information in this regard, we highly suggest that you read the article, "Debt Consolidation - Do You Know The Fact!"
Should you wish to apply for refinancing or a debt consolidation loan, you may do so online which may result in offers from numerous lenders. There is no cost to apply, the application process is fairly simple and typically you will know the results within hours. For more information, we invite you to visit Credit and Financing.™
If, after reviewing this information, you decide that a debt management program may be in your best interest, we invite you to apply through a Debt Management agency.
Lastly, to help you get a better understanding of how credit reports may affect your life we have established a sector on Credit Reports.™ For most consumers it is important that they review their credit report at least once a year. In that you are reading this article, it is obvious that your credit rating is important to you. If you have not reviewed your credit report recently, we suggest that you do so immediately. We wish you the best and be sure to Review Your Credit Report.
Note: The Center For Debt Management suggest you Monitor Your Credit Report regularly. Lexington Law Firm is our preferred choice for fast and effective credit repair. Lexington Law
is reputable and is a member of the BBB. They have a satisfactory record with the bureau.
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The Center For Debt Management™
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Debt Management Program: What affect will it have on your credit rating?
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