How a Credit Card Payment Plan Can Affect Your Credit Health

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How a Credit Card Payment Plan Can Affect Your Credit Health

If you're falling behind on your bills due to an unexpected change in your life, a credit card hardship program could be the answer to your money woes. A hardship plan is offered through creditors to existing account holders who are experiencing a rough patch, like unemployment or an illness. The benefits can include structured payment plan schedules, lowered interest rates, decreased minimum payments and reduced fees. Although they aren't heavily advertised, they do exist at many issuers, though the specific terms will depend on your creditor.

If a payment plan sounds like it could fit your financial situation, you may want to reflect on the consequences a hardship program could have on your credit health before making a decision. If you're considering enrolling or if you have already have, read on to find out how a payment plan might affect your credit health.

Potential Credit Effects

It's not easy to predict how a hardship program will be reported on your credit, if at all. Just as the plan can vary, how it's reported can vary too. Sometimes an account can be reported negatively with a status of "paying partial payment agreement" or "settled." Accordingly, it's best to check with your creditor about how or if they will report that you're paying your debt through a hardship program. If you're enrolled and didn't discuss this with your creditor beforehand, you can view your full credit report now to check the account's details, or reach out to your creditor for more information.

If the payment plan is marked on your credit report under one of the previously mentioned statuses, that might appear as a credit risk to potential lenders. Letting your account fall into delinquency in the first place - even if you had a good reason - demonstrates a certain amount of potential irresponsibility to lenders. On the other hand, the fact that you cooperated with your creditor to figure out a payment plan that works for you shows that you're being proactive about whittling down your debt.

In addition to this notation on your report, participating in a hardship program often requires you to close your credit accounts. When you're hashing out the details with your creditor, ask if the account will be reported as "closed by consumer" or "closed by creditor." If an account is reported as closed by you, the consumer, there isn't necessarily anything negative about that. However, an account that was closed by the lender may indicate to future lenders that the issuer reached the end of its rope and took away your credit.

The act of closing your accounts may also impact other components of your credit health, like your age of credit history, credit card utilization and account mix.

Bottom Line

Before agreeing to any type of program, it's generally good practice to get a written copy of the details of the plan. Check with each of your creditors and cover all your bases to make sure you're making the correct decision for your financial health. You might also consider opening new balance transfer cards or personal loans to tackle your debt.

As for how a credit card hardship program will impact your credit health, yes, you might expect some negatives. But at the end of the day, you may find that resolving your debt payment dilemma is a productive step toward repairing your credit health. If a creditor is willing to extend its hardship program to you, and the specifics sound beneficial in your case, go ahead and attack your debt!

About the Author: is the Communications Coordinator at Credit Karma. When she isn't writing her way through life, you can find her reading about the latest in entertainment and watching television almost every night of the week. Say "hi" @noodlemaine!

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Helpful to 8 out of 8 people

I am paying my Chapter 13 back in full. Why is that not reflected. I have no missed payments.

Credit Karma Team
Top Contributor
2949 Contributions
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Helpful to 6 out of 8 people

Hi Sautmare,

We recommend contacting TransUnion regarding incorrect or incomplete information on your credit reports. 

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5 People Helped

Helpful to 5 out of 6 people

I resently filed a chapter 13 after being out of work due to injuries. My credit went to the craper and I am wanting to rebuild it as quoickly as possible. Please advise me as to how to make this happen, I previously had a good score for many years. Thanks

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512 Contributions
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Helpful to 5 out of 7 people

It can take quite some time to rebuild your credit after filing bankruptcy, so what you'll really need to do is wait out the impact. You can also try a few of these steps, but remember that bankruptcy can affect your credit for many, many years:

1 Contribution
5 People Helped

Helpful to 5 out of 6 people

I have a Chaper 13 and I see that Capital One Auto has my account still open. Will this negatively keep affecting my credit? They have not picked up the car from the co-owner. 

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Helpful to 3 out of 5 people

Any incorrect information on your credit report can adversely effect your score. It would be a good idea to contact the reporting agency and dispute it. Also, contact Capital One Auto and let them know that they are reporting incorrect information. If this doesn't clear it up, you have grounds to file suit for willfull non complaince of the FCRA but you will need to create a paper trail and be sure that you have given them enough time to resolve the situation.  I have done this myself personally and created a system of sample letters and instructions on how to use them and the laws that govern it all.  If you are interested, run a search online for Weathering Debt and you will be able to find it.  You can also find the information for free at many sites, even the FTC has an opinion about doing it yourself vs paying someone else to do it for you.  Check it out, the worst thing that could happen is you will learn something :)

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I just have a question. If it says on the credit report "Closed Derogotory account" and the balance shown is "0", does that mean that my appointed Trustee is still paying on the account as his report states? I do see that 2 accounts have recent payments, but 4 do not. The 4 accounts show no payment since 2012. In 2016 I received a report showing payments for those 4 accounts.

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