Debt Management Plan Score Impact

[newmomnewme]

I did a little research on the board...but couldn't find anything recent. My mom and best friend entered their debt management plans right before COVID. Neither has any lates or baddies, just lots of revolving payments with high interest to pay each month. 

Both had to close all cards included in the plan, their scores rebounded after the first two months...

I told my mom to app for a secured card that might be able to grow while she was in the plan and Navy approved her. My best friend tried to do the same and no luck anywhere. 

What is the impact of the DMP? Is it a mark on credit that doesn't impact score but means they will be instantly denied for any unsecured revolving credit products? 

Example: my mom joined DCU with me a couple weeks ago and wants to refinance her car loan. Is it worth it to try or just assume it's a no go because of the DMP mark? 

Also, how long will the mark stay after they finish the payments? 

[Brian_Earl_Spilner]

It depends on who they're using. Sounds like they agreed to close their cards and go into hardship programs with the lenders. This is something they could have done without a debt management company. As long as payments are made as agreed, it shouldn't affect their credit score. There won't be a mark unless a lender wants to note that they're in a hardship plan. That could cause a problem during manual underwriting. The main issue they'll be facing is trying to get back in with those lenders. They may not allow them to apply again in the future, at least for some time, and will cite previous relationship.

The biggest problem we see with debt management companies is the payments aren't made or dispersed properly causing the agreement with the lender to be voided. Rate jacking and reported derogatories ensue.

[newmomnewme]

Thanks. They didn't consult me before agreeing to pay someone to pay their bills!!! 

It just seems like a scarlet letter (especially for my bestie) Her scores are in the good to very good range and she still can't get approved for anything. I thought there was like a secret code on her reports or something. 

[Anonymous]

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@newmomnewme wrote:

I did a little research on the board...but couldn't find anything recent. My mom and best friend entered their debt management plans right before COVID. Neither has any lates or baddies, just lots of revolving payments with high interest to pay each month. 

Both had to close all cards included in the plan, their scores rebounded after the first two months...

I told my mom to app for a secured card that might be able to grow while she was in the plan and Navy approved her. My best friend tried to do the same and no luck anywhere. 

What is the impact of the DMP? Is it a mark on credit that doesn't impact score but means they will be instantly denied for any unsecured revolving credit products? 

Example: my mom joined DCU with me a couple weeks ago and wants to refinance her car loan. Is it worth it to try or just assume it's a no go because of the DMP mark? 

Also, how long will the mark stay after they finish the payments? 

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It is my understanding that if the debt management plan code is entered on your credit report, it is considered negative. I do not know how many points no idea.

[newmomnewme]

I KNEW it!!! Thanks @Anonymous I'm not 100% crazy. I remember the older scoring models that had different codes and their was a code for debt management plans. It doesn't make sense that they would get rid of the codes totally....just not sharing them with us.

[Anonymous]

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@newmomnewme wrote:

I KNEW it!!! Thanks @Anonymous I'm not 100% crazy. I remember the older scoring models that had different codes and their was a code for debt management plans. It doesn't make sense that they would get rid of the codes totally....just not sharing them with us.

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@newmomnewme NP, I think it was mentioned in the blog article recently, too. AC code is an example. 

https://www.myfico.com/credit-education/blog/check-credit-report-after-coronavirus-relief

[Anonymous]

Probably always the bottom code, so you’re rarely see it.

[Anonymous]

I think the score impact may depend on how each credit card company handles it.  I did a DMP years ago, not really understanding the impact, until I received a collection notice for a phone bill and looked at my reports. It was only then that I saw all the negatives from the charge offs.  I knew that the credit card companies had agreed to a negotiated minimum payment but it just didn't click.  From what I recall it took the normal 7 years to fall off, and become a positive closed account.   It's great their scores have rebounded, but if the credit card companies have not yet reported them as charge offs, the scores could still crash.  What I do recall is that I was told not to apply for ANY new credit while in the program.  I think that is common, but you would need to check their DMP agreement.  Hope it does work out for them.

[newmomnewme]

@Anonymousthanks for sharing your experience. I feel like they both should have just filed BK instead. These DMP seem like dragging on instead of a fresh start. 😬

[Anonymous]

If they report as charge-offs yeah it’s gonna be a unfortunate and probably quite serious penalty. I hope they do not report as chargeoffs for you. I hope they simply put the modification code whatever. Chargeoffs will kill your score.