Does Debt Review Affect Your Credit Score?
If you're considering debt review but worried about your credit score, you're not alone. It's one of the most common concerns I hear from clients. Let me explain exactly what happens to your credit record during and after debt counselling – the reality might surprise you.
The Short Answer
Yes, debt review does affect your credit score – but not in the way most people think. While you're under debt review, a "flag" is placed on your credit profile indicating your status. However, no new negative information is added to your record during this period. And here's the key point: once you complete the process and receive your clearance certificate, the flag is removed entirely.
What Happens to Your Credit Record During Debt Review
When you enter debt review, several things happen to your credit profile:
The debt review flag is added. Credit bureaus are notified that you're under debt counselling. This flag prevents you from taking on new credit while in the programme.
Your accounts are marked as "under debt review." This tells creditors you're actively managing your debt through a legal process.
No further negative listings are added. This is crucial – while you're making your reduced payments on time, creditors cannot add judgments, defaults, or other negative marks against you.
Your payment history improves. As you consistently make your restructured payments, you're building a track record of reliability.
The Credit Score Myth vs Reality
Many people believe debt review will "blacklist" them forever. This simply isn't true. Here's what actually happens:
Myth: Debt review destroys your credit score permanently.
Reality: The debt review flag is temporary and is removed once you complete the process.
Myth: You'll never get credit again.
Reality: After receiving your clearance certificate, you can apply for credit just like anyone else.
Myth: It's better to struggle alone than go under debt review.
Reality: Missing payments, defaults, and judgments cause far more damage to your credit score than entering debt review.
What's Worse for Your Credit Score?
Let's compare debt review to the alternatives:
| Scenario | Impact on Credit Score | |----------|----------------------| | Debt Review | Temporary flag, removed after completion | | Missed Payments | Stays on record for 2 years | | Default Listings | Stays on record for 2 years | | Judgments | Stays on record for 5 years | | Sequestration | Stays on record for 10 years | | Administration | Stays on record until paid + 5 years |As you can see, debt review is actually one of the least damaging options for your long-term credit health – especially when compared to letting debts spiral into defaults and judgments.
The Clearance Certificate: Your Fresh Start
When you successfully complete debt review (meaning all your debts are paid off), your debt counsellor issues you a clearance certificate – officially known as a Form 19. This document:
- Confirms you've completed the debt review process
- Instructs credit bureaus to remove the debt review flag
- Restores your ability to apply for new credit
- Proves you've successfully managed and eliminated your debt
Think of it as a graduation certificate for your financial rehabilitation.
How Long Does the Flag Stay on Your Record?
The debt review flag remains on your credit profile only for as long as you're in the programme. Once you receive your clearance certificate, credit bureaus must remove the flag within 21 business days.
The duration of your debt review depends on:
- How much debt you have
- Your income and expenses
- The repayment plan negotiated with creditors
Most clients complete the process within 3 to 5 years, though some finish sooner.
Can You Actually Improve Your Credit Score Through Debt Review?
Here's something few people realise: debt review can actually set you up for a better credit score in the long run. Here's how:
You stop the bleeding. No more missed payments, no more defaults, no more judgments being added to your record.
You build a payment history. Consistently paying your restructured amount shows you can manage financial commitments.
You reduce your debt-to-income ratio. As debts are paid off, this key metric improves.
You start fresh. With a clearance certificate and reduced debt, you're in a stronger position than before.
What Creditors See When You Apply for Credit After Debt Review
After completing debt review, your credit report will show:
- The debt review flag has been removed
- Your debts have been paid as agreed
- You completed a structured debt management programme
Many responsible creditors actually view completed debt review positively – it shows you took control of your situation, stuck to a plan, and followed through. That's more impressive than someone who simply ignored their debts.
The Bottom Line
Yes, debt review affects your credit score in the short term. But compare that to the alternative: drowning in debt, missing payments, accumulating defaults, facing judgments, and potentially losing your home or car.
Debt review isn't about destroying your credit – it's about protecting what you have while you work towards becoming debt-free. And once you complete the process, you emerge with a clean slate and the knowledge that you can manage your finances.
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Ready to protect your financial future? If you're struggling with debt and worried about your credit score getting worse, let's talk. Book your free assessment – I'll personally review your situation and give you honest advice, even if debt review isn't the right solution for you.