Debt consolidation could be an effective way of reducing your repayments, thanks to the lower interest rate. When we are discussing the impact of debt consolidation on your credit score, the news seems to be even better. While some people feel that debt consolidation needs to be avoided, in reality, it is often very good and positive to your credit score. Taking out one single loan to pay off multiple loans would be adding one new loan to the credit history. However, it would also eliminate so many older loans and they would be marked as paid in full.
Till you are paying off the debt consolidation loan consistently and timely, the credit agencies would be seeing that you are actually being responsible and are working consistently toward resolving your debt issues. Your ultimate aim is to boost your credit and not damage your credit score. This is the reason why it is vital to understand how exactly, debt consolidation would be affecting your credit.
Positive Impact of Debt Consolidation on Your Credit Score
An effective debt consolidation loan would be impacting your credit score positively. In fact, thanks to debt consolidation, the credit agencies would be assuming that you are actually paying off numerous accounts with your new debt consolidation loan. It seems to them that you have managed to pay off successfully all loan accounts. Here we are giving you an outline of some of the positive impact on the credit score. Your credit score would go up provided:
- You are making timely debt consolidation loan repayments every month. This would have a fabulous impact on the credit score.
- With effective debt consolidation, you could be eliminating your balances, or reducing them to almost less than 30 percent of the credit limit on your card. Numerous accounts would be appearing to be paid fully.
- It is always a better idea to borrow against an equity line as compared to applying for another new credit card repeatedly for taking advantage of the lower interest rates. It is best to use personal loans for effective debt consolidation. So long as the bills are paid on time, there would be a marked boost in your credit score.
- You have successfully altered your spending habits and opted for a lifestyle change. You have made a resolution to stop accumulating more debts. Browse through online debt consolidation reviews for more information.
Negative Impact of Debt Consolidation on Your Credit Report
Debt consolidation could be hurting your credit score when you
- Continue making charges on the credit cards even after you have paid off your balances.
- You seem to be 30 days late while making your debt consolidation loan repayments.
- You put in loan requests for loans you are not eligible for.
Final Thoughts
You must keep in mind that if you begin missing your payments and start making late payments, your credit score is bound to decline. It is necessary for you to stay totally committed to your debt consolidation loan program. Closing credit accounts would not hurt your credit score but would be discouraging further spending. If you need to close specific credit accounts, it is best to close the latest or the recently opened credit accounts.