How does consolidating affect your credit
When you’re ready to get out of debt, sometimes it’s hard to know which path you should take.
For some people, debt consolidation will be the best option because it can allow you to group all your debt together, thereby making it easier to manage your debt – and in some cases lowering your monthly payment and interest rate at the same time (see our article on how debt consolidation works).
This means that your total payout on your debt is less with a consolidation loan than if you had remained with many creditors.
If you start to miss payments and/or make late payments on your debt consolidation loan, your credit score will decline.
If you start using other credit card accounts, which is not recommended, pay the bills promptly to continually improve your score.
The obvious benefit of a debt consolidation loan is one single monthly payment, instead of scrambling to pay several creditors each month.
The older accounts carry more of your credit history.
Kristie Lorette started writing professionally in 1996.
This step also positively affects your credit score, but it does take time.
” To answer that, you need to understand how credit reports and credit scores work.
If you’re not familiar with the process, here’s a very brief explanation: Your credit report contains information about all the credit accounts you’ve ever had, including mortgages, auto loans, credit cards, student loans, etc.
Credit reporting agencies issue credit scores to all consumers based on your credit history.
Lending institutions use these scores to determine your level of risk on a loan or line of credit.
As long as you are paying the new loan consistently and on time, the credit agencies see that you are taking responsibility and working to resolve your debt problems.