As you are aware, when a consumer enters a debt management program (DMP) they are telling all their creditors that they can no longer pay them the amount they borrowed in the required timeframe. Although a DMP credit rating may be viewed as a disadvantage to the client, their current credit report may have already been severally damaged by unpaid, late or delinquent accounts. This is explained to every client before they sign an authorization and payment agreement. A DMP may have a negative impact on a credit report in the short-term, but in the long-term, it may help clients improve their credit report faster because they are making regular payments and they reduce their debt.
- Upon proposal acceptance, it is the financial institution’s responsibility to reflect this repayment agreement on the client’s credit report.
- A DMP should be reflected as an R7 credit rating – making a voluntary payment arrangement.
- Over the duration of the program, the credit report should have a note stating the client is making regular payments on their debts through a special arrangement with credit counselling.
- Late or missed payments can be noted as negative entries on the client’s credit report.
- Upon successful repayment of the debt, the creditor is responsible for reporting to the credit bureaus that the account has been paid in full. The two bureaus, Equifax Canada and Trans Union of Canada, will not accept reports from credit counselling agencies to update files.
This information will stay on the client’s report for two years after they pay the debt in full. Please remember, the length of the program can vary by client, with the maximum length being 5 years. The average repayment period is 42 – 46 months. Some clients may choose to pay off the debt faster, and subsequently, have their R7 rating removed earlier.
Credit counselling agencies encourage clients to check their credit reports on a regular basis. Clients are often keen to see the changes reflected on their report and can become worried and distraught when this information is not updated in a timely manner.
Upon successful program completion, clients are encouraged to start rebuilding their credit. This can happen through access to a secured credit card. To obtain this form of credit, it is imperative that the DMP is properly reflecting as paid in full on the credit report.
Credit has become vital to function in our society, and fixing one’s score takes time and hard work. It is our hope that with prompt communication between credit counselling agencies, creditors and the credit bureaus, we can make this as easy as possible for all clients.