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Improving Your Credit Score With Debt Consolidation
Debt consolidation, used carefully, can help improve your credit score. Used recklessly, debt consolidation can land you in bankruptcy! Your credit score is a finicky thing, sometimes changing daily. But, if you are careful, it can work for you.
Your credit score is based on several factors, with the three biggest being the amount of time you've had credit, your amount of available credit and whether or not you made payments on time. Nothing can change how long you've had credit except for time. Unfortunately, the credit bureaus look down on anyone that has had credit for less than 15 years! Not that 32 is old, but who's in a hurry to get there! Since this is only 10% of your score, don't sweat it too much.
The largest component of your credit score is your payment history. Creditors want to be paid on time. If you have had some mistakes, don't panic. After a year, the effects of late payments start to diminish. Getting online bill payments can help with this by ensuring that your payments are on time. Another great method is debt consolidation.
By reducing the overall amount that you have to pay every month and the number of people you have to pay, debt consolidation increases your chances of never being late. You can also set up your debt consolidation to automatically withdraw from your checking account, guaranteeing and on time payment. It is critical for you to increase your credit score. Higher credit scores decrease interest rates, which mean that your debt will build slower.
The other major component of your credit score is the amount of credit available to you. As backward as it seems, creditors want you to have high limits on your credit cards and then not use them. No, it doesn't make sense. It just is. By helping you reduce your credit load, a debt consolidation puts you in a position to do just that. Of course, this depends on the type of debt consolidation that you do.
Some debt consolidations actually just keep all of the accounts, just them paying them for you. Others pay off all accounts and replace them with one loan. Still others move the balances, but leave the accounts open. When you are considering a debt consolidation, ask your advisor directly how this will reflect on your credit score. They can't give you an exact figure, but they can indicate whether it would increase or decrease it.
Debt consolidation is not magic, and credit scores are not easy to understand. However, a debt consolidation can help, but not fix, your credit score. Only luck, careful planning, time and discipline can get you a good credit score.
A credit score is not the definition of your world, only one of the tools to help you move through it. Don't worry if you don't have the best score. Just have the best score that you can. Getting your debt under control should be your main worry. That is what affects you daily.
A credit score is not the definition of your world, only one of the tools to help you move through it. Don't worry if you don't have the best score. Just have the best score that you can. Getting your debt under control should be your main worry. That is what affects you daily.
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