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 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:

FICO credit scoring breakdown

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. 

Learn more:

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.