Advice Needed About Adding a Debt to a DMP

DogFace

I have been on a DMP for a few years now, most of those debts defaulted before I really knew there was any way to get help, so I found myself in a bit of a mess. Those defaults are due to drop off in a year or so plus I’m likely to be inheriting enough money in the next few months to pay off my DMP.

However... about a year or so ago I started taking actions to try to improve my credit score and it has gone up, although I’m unsure which one(s) to thank for that. One action was taking out a credit building credit card with Marbles*. They are now increasing the interest on my card and have given me the option of closing the account and repaying it at the existing interest rate instead, plus there’s a third option.

A) Continue and pay this 6% interest increase
Close the account and pay it off (hopefully with that inheritance but it seems I may I only be getting enough to clear my DMP)
C) Add it to my DMP

Can anyone offer any advice on which of these is the best solution? As I am in a position to fix my financial situation soon, I really don’t want anymore defaults or a huge negative impact on my credit rating. Would adding it a DMP automatically mean either of those?

Thanks in advance for any help anyone can offer!

* Not sure if this information is relevant but here’s the full story: This slowly increased to a limit of £3,000... I always make absolutely sure to make the boosted payment amounts because I didn’t want to get into the same mess again. Then my partner was out of work for a few months, I kept making those boosted payments but a few times the interest charges caused me to go over the limit.

EssexHebridean

For anyone else reading this, for a start - the absolutely essential thing if getting a card to rebuild your credit history (not "credit score" - this is an imaginary figure used by nobody of any relevance) is that you always set up to pay the card off IN FULL each month, ideally using it only for something tightly controlled like fuel for the car, or groceries, where you spend to a budget and not a penny more.

OP I've no idea if you have to declare this to the company managing your DMP - you may well be advised to but someone with more knowledge than I have in that area will be able to advise on that - but I'd suggest your first port of call might be to do a new SOA with your current income & expenditure on it and post that in here so we can see if we can help you find any savings that would enable you to pay the debt back if NOT adding it to the DMP. Regardless, a new SOA is vital if your circumstances have changed to ensure that your budget is still manageable.

Oh - and that credit card? Cut it up - right now. Don't use ANY form of credit again until you are 100% confident that you are able to manage it. Ignore your "credit score" other than for the purposes of checking your file occasionally to be sure there is nothing amiss on there - if you don't need or want to take out any further credit, then that "score" (history) isn't relevant to you in any event.

DogFace

Thanks for your reply.

EssexHebridean wrote: »

For anyone else reading this, for a start - the absolutely essential thing if getting a card to rebuild your credit history (not "credit score" - this is an imaginary figure used by nobody of any relevance) is that you always set up to pay the card off IN FULL each month, ideally using it only for something tightly controlled like fuel for the car, or groceries, where you spend to a budget and not a penny more.

OP I've no idea if you have to declare this to the company managing your DMP - you may well be advised to but someone with more knowledge than I have in that area will be able to advise on that - but I'd suggest your first port of call might be to do a new SOA with your current income & expenditure on it and post that in here so we can see if we can help you find any savings that would enable you to pay the debt back if NOT adding it to the DMP. Regardless, a new SOA is vital if your circumstances have changed to ensure that your budget is still manageable.

Oh - and that credit card? Cut it up - right now. Don't use ANY form of credit again until you are 100% confident that you are able to manage it. Ignore your "credit score" other than for the purposes of checking your file occasionally to be sure there is nothing amiss on there - if you don't need or want to take out any further credit, then that "score" (history) isn't relevant to you in any event.

Yes, the idea was to pay it off in full but life happened and plans changed. In regards to my credit score: I can’t change history... I can change a score (that is generated based on information what shows on my record, right?).

Therefore, I am taking actions to improve the score, not for the sake of the score but because of how that relates to my future ability to secure a mortgage etc. Am I wrong? I am very grateful for any help but people have pointed out the “score” thing before and I’m just not sure if I’ve misunderstood or what?

I will do a new SOA soon but I imagine that the repayments are just about affordable... but I’m thinking it makes sense to add it to the DMP if it will stop the interest but only provided it won’t have a HUGE impact on my “future likelihood hood of securing a mortgage” (i.e. credit score)... Can anyone clarify that final point?

tealady

Your "score " is just a random number and is largely irrelevant.
What matters is your credit HISTORY.
Someone who pays their bills on time and in full will have a better history (and be a better risk) than someone who doesn't.

EssexHebridean

DogFace wrote: »

Thanks for your reply.



Yes, the idea was to pay it off in full but life happened and plans changed. In regards to my credit score: I can’t change history... I can change a score (that is generated based on information what shows on my record, right?).

Therefore, I am taking actions to improve the score, not for the sake of the score but because of how that relates to my future ability to secure a mortgage etc. Am I wrong? I am very grateful for any help but people have pointed out the “score” thing before and I’m just not sure if I’ve misunderstood or what?

I will do a new SOA soon but I imagine that the repayments are just about affordable... but I’m thinking it makes sense to add it to the DMP if it will stop the interest but only provided it won’t have a HUGE impact on my “future likelihood hood of securing a mortgage” (i.e. credit score)... Can anyone clarify that final point?

No, you can't change history BUT in terms of your financial history (or "credit file") it is evolving all the time, so a good decision made now will impact on what lenders see in a year's time, for example. If you want to see why your "score" is such a pointless thing to look at, get your "score" from each of the main credit reference agencies, and write each number down on a piece of paper. You have three different numbers - yes? It really is just a number, and is not anything that lenders either see or in any way take into account - all they are interested in is the evidence from your file of your financial history and decision making - whether that is good, or bad.

The "life happens" thing is why you would be well advised to build an emergency fund. Had you had that in place, that first month where the credit card balance could not be cleared you could have used funds from the EF to clear the balance, and then stopped using the card going forwards, thus avoiding the situation you are in now. I appreciate that for you, this is easy to say with hindsight, but it's still worth setting out as that might help someone else in a similar situation in the future.

Re adding to the DMP - a couple of things to think about stand out - often I believe a DMP provider says that you should not take further credit whilst on the DMP - so that is worth looking into - they could take the request to add the debt on as evidence that your DMP has failed, possibly? Secondly - if you are currently able to make the repayments, you will do less damage to your credit file now by continuing to make those payments as that means the item will stay on your history with up top date payments - adding it to the DMP will put a marker on your file which will then take at least 6 years to clear, I'm guessing.

Suseka97

EssexHebridean wrote: »

...............Re adding to the DMP - a couple of things to think about stand out - often I believe a DMP provider says that you should not take further credit whilst on the DMP - so that is worth looking into - they could take the request to add the debt on as evidence that your DMP has failed, possibly? Secondly - if you are currently able to make the repayments, you will do less damage to your credit file now by continuing to make those payments as that means the item will stay on your history with up top date payments - adding it to the DMP will put a marker on your file which will then take at least 6 years to clear, I'm guessing.

I agree with EH summation of your options. I assume you are with one of the debt charities and you would have signed something at the outset that stated, whilst in the DMP, you would not take out any further credit.

So your choices are:

a) tell your DMP provider and they are more than likely to agree to add it to the current plan (its happens). If you do that then you will effectively default on your contractual agreements with the cc company and yes, it will ultimately impact on your credit file. The benefit to you is that, once defaulted, you will not have to pay those interest or charges.

b) don't tell your DMP provider and continue on with your payments, even with the interest hike. You will of course need to 'hide' that expense when you complete your annual review, but presumably you've already been doing that, or use your inheritance monies.

In a way you've answered your own question when saying that you really don't want any more defaults.

DogFace

Thanks all! I’ll just pay it off and get rid of it ASAP. I guess I was looking for confirmation that it would add a default. I wasn’t sure if it might have a lesser impact if I’ve always made payments, even if they become part of a DMP.

Just as a final note on the “score” thing. I realise that there is a misconception about them as if mortgage or loan providers are using this score to accept/deny or make interest rate decisions. I understand that that’s not the case, I’ve simply been using the score as an idea of how well I’m doing improving my credit file because surely the banks etc. would find the same information? If that isn’t a right and they are so pointless then why is MSE partnered with Experian and provide you with the score as part of the credit club?

sourcrates

DogFace wrote: »

I’ve simply been using the score as an idea of how well I’m doing improving my credit file because surely the banks etc. would find the same information? If that isn’t a right and they are so pointless then why is MSE partnered with Experian and provide you with the score as part of the credit club?

Are you aware you can be a bankrupt and have an experian score of 999 ?
Credit reference agencies are not lenders, they use this number they generate as a marketing tool to sell you either, credit improvement products, or, they partner up with high interest credit card/loan providers and act as introducers for which they are paid a fee.

The score itself is based roughly on how they percieve you mange your credit accounts, so potentially the better the score, the better the deals you are offered will be, however that does not mean you will be accepted for them, the creditors have their own, individual scoring systems which will determine yea or nay, so the score you see on your credit report should not be taken as an indicator of your own credit worthiness.

DogFace

sourcrates wrote: »

Are you aware you can be a bankrupt and have an experian score of 999 ?
Credit reference agencies are not lenders, they use this number they generate as a marketing tool to sell you either, credit improvement products, or, they partner up with high interest credit card/loan providers and act as introducers for which they are paid a fee.

Ok, I’m surprised to hear that considering MSE’s partnership with one.. but what you say does make sense. I’ve never paid for one nor bought any service etc from one though.

The score itself is based roughly on how they percieve you mange your credit accounts, so potentially the better the score, the better the deals you are offered will be, however that does not mean you will be accepted for them, the creditors have their own, individual scoring systems which will determine yea or nay, so the score you see on your credit report should not be taken as an indicator of your own credit worthiness.

Is there a better way to asses your own credit worthiness? I check my full report and consider the positives and negatives but, tbh, I don’t really know how much value each of these has.