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How Does a Debt Management Plan Affect Your Credit Report?

Learn how a Cambridge Credit Counseling debt management plan may affect your credit report, including closed accounts, credit scores, and payment history.

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Closed statements and blank notepad on wooden table, morning light.

Starting a debt management plan through Cambridge Credit Counseling may initially lower a person’s credit rating or credit scores. Accounts placed on the plan are closed while you’re on the program, and closing accounts can reduce your scores. Staying current on plan payments can help you avoid new late marks on your report. Though scores can dip at enrollment when accounts are closed as a trade-off for rate reductions and/or fee waivers, scores typically rebound over the program’s term, as balances are paid down every month. As a 501(c)(3) nonprofit, Cambridge Credit Counseling cannot and does not charge separate fees for credit repair. Better credit isn’t why people come to us, but it can be a nice side benefit of the commitment to your debt management plan.

Establishing a debt management plan may adversely affect your credit, though the effect may be temporary as you remain committed to making monthly payments through your Debt Management Plan. However, maintaining your Debt Management Plan payments through our program can avoid other adverse actions by your creditors, including increased finance charges or other fees.

Accounts enrolled in the plan are closed#

When Cambridge Credit Counseling places an account on a debt management program, that account is closed while the client is on the program. Once the accounts are paid in full, the client must re-apply with the banks to get new credit. Closing these accounts can reduce credit scores, and how much depends on what is already in the credit report at that time.

How on-time payments fit into the picture#

A credit card payment generally must be a full 30 days or a full billing cycle past due before it affects a person’s credit score or credit report. Under a Cambridge Credit Counseling debt management plan, the client makes one monthly payment to Cambridge, and Cambridge sends payments to each creditor on the plan. Keeping this single payment current helps avoid new late payment marks like the ones described above. A debt management plan is not a loan and does not involve borrowing new money, it simply consolidates unsecured debts into one monthly payment handled by the counseling agency.

What else can show up on your report#

The credit history section of a credit report generally lists a person’s credit accounts from the last ten years. If an account was already delinquent before joining a plan, creditors are legally required to charge off accounts once they reach a certain number of days past due, personal loans and credit card accounts on a workout plan charge off after 120 days of delinquency, while credit card accounts not on a repayment plan are charged off at 180 days past due. If that debt is later sold to a collection agency, it does not create a second debt, so the same debt can only be reported once.

Cambridge Credit Counseling’s role before and during a plan#

Cambridge Credit Counseling is a nonprofit agency that offers credit counseling, debt management plans, housing counseling, student loan counseling, reverse mortgage counseling, and bankruptcy counseling. To find out whether someone qualifies for a debt management plan, Cambridge has them complete a personalized, one-on-one debt analysis with one of its nationally certified credit counselors. A debt management plan is not credit counseling itself, though setting one up is one possible outcome of a counseling session. Clients enrolled in the plan receive a Client Membership Guide that explains how the plan is managed.

What to do next#

If you want to understand how a debt management plan might affect your own credit report, Cambridge Credit Counseling offers a free financial assessment as part of its personalized debt analysis with a nationally certified credit counselor. This session can help you see your options before you decide whether a plan is right for you.

Common questions

Will a debt management plan lower my credit score?

A Cambridge Credit Counseling debt management plan may adversely affect your credit, though the effect may be temporary as you remain committed to making monthly payments through your Debt Management Plan. That is generally because the accounts placed on the plan are closed. How much depends on what is already in the credit report at that time. Though scores can dip at enrollment when accounts are closed as a trade-off for rate reductions and/or fee waivers, scores typically rebound over the program's term, as balances are paid down every month.

Why are my accounts closed when I join a debt management plan?

Accounts placed on a Cambridge Credit Counseling debt management program are closed while the client is on the program. After the accounts are paid in full, the client must re-apply with the banks to get new credit.

Does making my monthly plan payment on time help my credit report?

A credit card payment generally must be a full 30 days or a full billing cycle past due before it affects a credit score or credit report. On a Cambridge Credit Counseling plan you make one monthly payment to Cambridge, and Cambridge pays each creditor on the plan, so keeping that one payment current can help you avoid new late payment marks.

How long do accounts stay on my credit report?

The credit history section of a credit report generally includes a listing of a person's credit accounts from the last ten years.

What if a debt on my plan was already charged off before I enrolled?

Creditors must charge off accounts once they reach a certain number of days past due, personal loans and credit card accounts on a workout plan charge off after 120 days of delinquency, while accounts not on a repayment plan charge off at 180 days past due. If that debt is later sold to a collection agency, it does not create a second debt, so it can only be reported once.

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