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Repairing Your Credit with Debt Consolidation
Is there really anything that you can do about your credit score? Will debt consolidation help or hurt it? Maybe. It's based on several factors, and how you manage them will determine your score.
Credit scores are based on your credit report. So check your report and argue any errors. Also, look at how old the reports are on there. You don't have to live with reports more than seven years old, unless you had a bankruptcy. If negative information is on there from before March 2000, get it taken off. Now.
The big thing that you are looking for is late payment reports. The more often that you are late, the lower your credit score, so get them off there. If you have had debt relief, not debt consolidation, in the past, make sure that your report is no longer flagged. This will keep you from getting credit.
Okay, now that the report is accurate (in your favor), you need to look at the three main factors in your credit score: Payment History (35%), Amount of Free Credit (30%) and Length of Credit History (10%). The length of your credit history will only change with time. Think of it as a benefit of aging. The other two you may be able to do something about.
The single most important thing on your credit report is your Payment History. This is a record of whether you were late on a payment. You can't do anything about missing a payment in the past, but you can change the future. The last year is the most important to creditors on this item, especially those offering debt consolidation.
Okay, first step is to get online bill payment. If you set online bill payment to pay your bills at least three days before they are due, you won't be late ever again. By reducing the number of payments that you have to make, debt consolidation can help with this part of your credit score. Also, by paying your debt consolidation loan on time, you demonstrate a good payment history for your credit score. Since the number of creditors is reduced, debt consolidation also reduces the risk of an error on your credit report.
The next part is perhaps the only component you have immediate control over. Your Amount of Free Credit. Creditors would like you to use no more than 30% of your available credit. Yeah, right. Okay, figure out how much you need for debt consolidation. Now, see if you can get a debt consolidation loan for more than that. Now, when you move your credit card debt over to your debt consolidation loan, leave them open but shred the cards. Okay, now you have available credit. This isn't as good as having 10% on each card, but it's a lot more affordable. This only works if you don't use those cards.
Debt consolidation is not a silver bullet for your credit score, but anything that shows more credit responsibility improves your credit score. Debt consolidation is just part of a package to improve your credit score. Ultimately, time will fix your score, if you are patient.
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