Debt consolidation is a process that can often help those who are struggling to keep on top of and manage multiple unpaid balances by rolling all of them into one loan. Often, this can help to simplify your life in a number of ways; from making it easier to keep track of every payment you need to make (of which there will only be one of if you consolidate), to potentially reducing your monthly outgoings and interest rates.
Because of this, consolidating debt is often considered to be one of the best ways to take control of your current financial situation and work towards a debt free future. But will it be easy to make the switch with your current credit score – and will your score change once you do?
How can your existing credit score impact a consolidation loan?
Luckily, while your current score is likely to have an impact, it isn’t set in stone that it will be the be-all and end-all of the matter. Since a lender is typically more likely to approve your application and give you a lower interest rate if you have good credit, it’s often safe to say that the higher your credit score is, the better everything will be for you when consolidating debt.
Having a bad (or lower than advised) score is likely to make it a bit more difficult to find a company that will help you to roll your outgoings into one sum, but it can be achieved. If you do manage to find a good deal, you’re likely to have a higher interest rate than you would if you had a good score – although in most cases, this is still likely to be better than the amount you’re currently paying, since you’ll only be paying rates for one debt, rather than multiple ones.
Will your credit score be affected by obtaining a debt consolidation loan?
Debts don’t usually help you out much when it comes to getting a good credit score –or in almost any instance, for that matter. On top of this, it’ll generally only get worse if you don’t do anything about your financial situation. This is just one of the reasons why taking out a debt consolidation loan can be a good idea. Since it’s a loan, you may be worried that making the switch will hurt your credit.
Fortunately, this isn’t usually the case. You’re likely to find that since you’ll still be paying off the same amount on your consolidated loan as you were on multiple debts, your credit won’t be affected.
The reality is that it can usually have a positive impact. In general, it looks better to have one loan rather than several unpaid balances, and paying one lump sum could help you to stay on track with your payments, too (which will in turn help to build your credit score).
What can you do if you have bad credit?
While the primary benefit of these types of loans is to make your debt more manageable and with a bad credit score, having to pay out a higher interest rate might negate that; you may still want to get the best possible rate when it comes to consolidating your unpaid balances.
Luckily, there are often quite a few things that you can do to improve your credit score, which can generally help you to at least get a better chance of getting an approval and a better rate on your loan.
On the other hand, you might want to spend a little time searching for a debt consolidation company that offers good rates for debtors with bad credit – of which there are quite a few that may be available to you across the United States.