Did you know that just by enrolling in a debt management program (DMP) and making payments on time you can boost your credit score? There’s a common misconception that if you have bad credit you can’t enroll in a DMP. The truth is the exact opposite: If you want to regain a healthy credit score, a debt management program may be the solution you need.
What Is a Credit Score?
Investopedia noted that a credit score is a “three-digit number that rates your creditworthiness,” with scores ranging from 300–850. According to Badcredit.org, only 1.2% of Americans have perfect credit. That means if you’re one of the millions of Americans (roughly 16%) with poor credit and too much debt, you’re in good company.
To break it down, a credit score is measured by these factors:
Payment history: Making late payments or defaulting on a loan can hit your credit score hard.
Credit utilization ratio: The rule of thumb is to not use more than 30% of your available credit.
Credit history: Older credit cards help establish your history of credit, so even if you’re not using them anymore, don’t throw them out.
Credit mix: A diverse mix of credit is a healthy mix, which means having multiple loans, like a car loan, student loan, mortgage, and credit card.
New credit: Boost your credit score with a new line of credit, but make sure to keep it in good standing.
How Can a Debt Management Program Help My Bad Credit?
By working with a credit counselor and enrolling in a debt management program, you’ll get help creating a budget, as well as the support you need to work with your lenders. A counselor will negotiate to consolidate your unsecured debt ((credit cards, unsecured loans, collection accounts, etc.) into one affordable monthly payment and reduce your interest rate, so you can pay off your loans in three to five years.
In the meantime, by taking control of your financial health through a DMP, your score will start to go back up—and your debt will go down.
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