How a Debt Management Plan Can Impact Your Credit Score

Most of the people who come to MMI are facing some kind of financial challenge. They may be behind on their mortgage, overwhelmed by student loan debt, or struggling to fund their retirement. The majority, however, are trying to manage more debt than their income can support.

For consumers with unmanageable amounts of credit card debt, MMI offers free, confidential debt counseling and, when applicable, a debt repayment program called a debt management plan (DMP). 

When considering your debt repayment options, one consideration should be how that method impacts your credit score. To accurately determine how a DMP might impact your credit score, MMI reviewed multiple years worth of data. Here's what we found:

Significant Increase in Credit Score for DMP Clients

In order to understand the typical credit score impact that debt counseling and a debt management plan can have on consumers, we tracked anonymized credit score data for MMI clients. We found that clients who completed a one-time debt counseling session saw their credit scores improve by an average of 37 points over the following two years. Clients who started and maintained a DMP saw their credit scores improve by an average of 62 points over two years.   

 

 

Year-over-Year Data

Our tracking began in 2017. Here's the average year-over-year improvement we saw:

Clients who participated in a debt and budget counseling session (but did not start a DMP)

  • 2017 Score | 567
  • 2018 Score | 590
  • 2019 Score | 604

Clients who started and maintained a DMP with MMI

  • 2017 Score | 592
  • 2018 Score | 635
  • 2019 Score | 654

How a DMP Impacts your Credit Score

A debt management plan can influence your credit score in multiple ways. Most importantly, a DMP is designed to help you do two things that are essential for building strong credit:

  • Make consistent payments
  • Reduce overall debt levels

While there are many different credit scoring models, nearly all weigh similar factors. Here are the most important factors in your FICO credit score:

Payment History: 35%

This includes the previous seven years of payments (including missed or late payments) for all credit and loan account.

Amount Owed: 30%

While this factor includes your total debt amount, the biggest factor may be your credit utilization ratio. If you use too much of your available credit, your score may suffer. 

Length of Credit History: 15%

Accounts that have been open for a long time are better for your score than new accounts.

Recent Inquiries: 10%

Recent attempts to open new credit and loan accounts may decrease your score (at least temporarily).

Credit Mix: 10%

Having a mix of credit and loan products in good standing is better for your score than only having credit cards (for example).

While your credit score may not be the most important thing in your life (especially if you're struggling), the more you can do to improve your score while getting out of debt, the better – especially if you've got big purchases on the horizon, like a car or a house.

  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Candid GuideStar Gold Transparency level 2022 Candid
    MMI has achieved a Gold Seal of Transparency by Candid (formerly GuideStar), a leading source for insights on thousands of nonprofit organizations. For decades, Candid has provided data that powers hundreds of websites, programs, and applications related to philanthropic giving in order to help grantors make informed decisions.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.