Consolidating your credit is no different than taking out any other form of loan when it comes to impacting your credit score. As long as you understand that it is your ultimate responsibly to handle your debt obligations, your debt consolidation loan will not have a significant impact on your credit than any other.
Application
When you apply for a debt consolidation loan, your creditor evaluates your credit worthiness by inspecting your credit report and your credit scores. This is known as a "hard pull" of your credit report, and the inquiry into your credit gets reported on the report itself. Having too many credit inquiries on your report can lower your credit score. Even a single inquiry can lower your score slightly, though this impact is not long-lived.
Debt Utilization
The type of debt consolidation loan you use can also have an impact on your credit score. If, for example, you use a credit card balance transfer offer to consolidate your credit card debt, your credit score will be affected based on the amount of debt you transfer. Part of your credit score is based on your debt utilization rates, which a balance transfer affects. If, for example, you transfer balances onto a card and exceed about 25 to 30 percent of your credit limit by doing so, this can lower your credit score.
Types of Loans
Another factor that impacts your credit score is the variety of kinds of loans you use. Creditors prefer borrowers who use a variety of loans, such as credit cards, car loans and mortgages. If you use a debt consolidation loan to eliminate one or more category of loans from your debt portfolio, this may negatively impact your credit score.
Payments
While getting a debt consolidation loan may not directly affect your credit score, borrowers often suffer negative consequences after consolidating debt because they do not learn to adequately repay their current debt obligations. If, for example, you use your consolidation loan as an opportunity to take on more debt because you believe you're spending less on the monthly payments, this can lead to serious issues later on.
0 comments:
Post a Comment