Does using a debt management program make your credit worse?

[Anonymous]

I was told that if you use a non for profit debt management company that it lowers your credit score. Is there any merit to this? What are the cons with using a DMP? Thanks for your help.

[Anonymous]

Yes.  Creditors look at it as one notch above all out bankruptcy. 

[Anonymous]

It may go on your credit report and potential lenders may not view it favorably on a manual review.  But it does not affect your credit score.

The danger is that some unscrupulous companies will collect your money (including a fee for them) but never pay your creditors. So you can end up in worse shape than when you started.

Some people have done well with DMPs and maybe someone will chime in here.  It takes years of hard work and you have to be hooked up with a reputable company.

[marty56]

DMP graduate, class of November 2007.

Aa far as I Know being in a DMP has saved my credit and no long term effects.  Just got a car loan with SSFCU at 5.4 which is there best rate.

It really depends on what your credit looked like prior to DMP.  For me it was the amount of debt that I had.  No major derogs.

The result of me being in a DMP was that my FICO scores probably went up almost 200 points.

It took me almost 5 years to pay everything off and being on a strict budget.  I still use the budget now.

Message Edited by marty56 on 06-13-2008 03:49 PM

[marty56]

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Carrot1 wrote:

Yes.  Creditors look at it as one notch above all out bankruptcy. 

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Wrong on both statements.

Those of you out there who may be considering DMP, I can only speak from my experience so please post or PM me and I will be happy to provide which company I used and anwer any question about it..

[Anonymous]

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marty56 wrote:

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Carrot1 wrote:

Yes.  Creditors look at it as one notch above all out bankruptcy. 

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Wrong on both statements.

Those of you out there who may be considering DMP, I can only speak from my experience so please post or PM me and I will be happy to provide which company I used and anwer any question about it..

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Actually, some CCC look at DMP as the final step before a CH considers BK because they know that if they go into a DMP they will get some money instead if they did a BK.  I worked as a collection agent (I needed a paycheck at the time) for a CCC and we would advise CH to check into DMP or consumer credit counselors if they were having money woes.

[fishbjc]

According to Suze Orman, banks do not look at this as irresponsibility because you're making an effort to pay the debt.

Fico doesn't care and it's only important if it's a manual review, which I had and it was not an issue.  Opened a line of credit for $6k.  B of A sent me a letter welcoming me to the program.  After speaking with their advisor....I can reopen the cc after the program is finished.

Friend finished up hers and was awarded a mtg though Chase.  Chase was included in her program.  They also reopened her paid off account.

[fishbjc]

I also purchased a new beetle with 0% financing, not a problem.

[Anonymous]

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fishbjc wrote:

According to Suze Orman, banks do not look at this as irresponsibility because you're making an effort to pay the debt.

Fico doesn't care and it's only important if it's a manual review, which I had and it was not an issue.  Opened a line of credit for $6k.  B of A sent me a letter welcoming me to the program.  After speaking with their advisor....I can reopen the cc after the program is finished.

Friend finished up hers and was awarded a mtg though Chase.  Chase was included in her program.  They also reopened her paid off account.

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I was a finance manager at a large car dealership for a long time.  Banks don't like to see it because it shows irresponsibility.  You couldn't handle the debt that you racked up so you had to get help.  It's like the difference between a topless dancer and a hooker.  There is a very fine line.  It is basically bankruptcy without court.  Almost any deal I ever submitted with DMP on the file was turned down.  So both statements are correct, and I've seen the effects of a DMP first hand.  Thank you, please come again. 

[Anonymous]

You're also making an effort when you catch up on a loan after being 30 days late, or paying a collection.  Doesn't matter.  I'm sure some lenders care less than others, and some loans probably slip through the cracks.  Auto manufacturers get desperate when car sales are slow and they relax their guidelines.  Again, I have had a lot of deals turned down simply because the client was on a DMP.  It may not lower your score, but it is a huge red flag for lenders.