Credit Score Basics > Will settling a DMP improve your credit score?

Will settling a DMP improve your credit score?

Wollit Team2 minute read · Updated 19th September 2024

If you’re struggling with debt, a Debt Management Plan (DMP) might be a good option for you. It helps you pay off your debts in a more manageable way. However, it can also have quite a bit of an impact on your credit score. The good news is that settling a DMP can allow you to start rebuilding your credit. Here is how it works.

What is a Debt Management Plan?

A DMP is an agreement between you and your creditors (the people or companies you owe money to).

The way it works is simple: Iit allows you to pay back your debts at a lower monthly rate than what you originally agreed to. This plan is often set up with the help of a debt management company.

A DMP can be very helpful if you're having trouble keeping up with your payments.

How does a DMP affect my credit score?

When you start a DMP, it can lower your credit score right away. This happens because you are paying less than what you originally promised to pay back. Lenders see this as a sign that you’re struggling, which can make them less likely to lend you money in the future.

However, a DMP itself doesn’t show up as a separate entry on your credit report. Still, creditors may note that you're making smaller payments. This can signal to future lenders that you're in a DMP and may make it harder for you to get new credit.

The good news is that the effects of a DMP on your credit score aren’t permanent. Once you finish your DMP, any settled accounts will stay on your credit report for six years from the date they were settled or defaulted. After six years, they will no longer affect your credit score at all – these partial payments will be gone from your credit history.

Will my credit score improve after completing a DMP?

Yes, after finishing your DMP, you can start rebuilding your credit score. Although the accounts related to the DMP will still appear for six years, showing that you are responsible when it comes to new debts – like paying bills on time – can help improve your score over time.

At the end of the day, this is what lenders care about – that you’re a responsible person who is likely to repay their debts. The way you show this is through a strong credit history.

Luckily, now there are many apps that can help you build and improve credit.

One such app is Wollit. Wollit is an app that reports your monthly subscription as loan repayment, helping you build a history of timely repayments without the risk of getting hit with high-interest charges or going over your card limit. It can even report your monthly rent payment to Experian, adding another line in your credit report that shows lenders you're responsible and pay your bills on time.