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Is Debt Consolidation Dangerous if I have Bad Credit?

Is Debt Consolidation Dangerous if I have Bad Credit?

One of the most popular, and yet untrue myths about debt consolidation is that it can hurt a person’s credit score.  While many financial tools that promise to help people with their debt actually do lower their credit score, debt consolidation loans are one of the few tools that have little or no effect on a credit score.

A credit score is based on a number of different factors.  While very few people know the exact formulas used, it is true that there are general trends that financial experts have identified.  For the most part, a person’s credit score is based on their payment history and the amount of credit that they are currently using.  Missing payments or using too much of the credit available on your credit cards can lower your score significantly.  A debt consolidation loan, however, will not effect your score.

All a debt consolidation does is pay off the debts you currently owe and replace them with a single loan.  It does not change the amount you owe, and it does not allow you to miss any debt payments.  Because there are no “mistakes” by a debt consolidation loan, there is no way that it can lower your credit score.  Paying off your debts also will not lower your credit score.  Even though your accounts are paid off, they will remain open.  Because of this, the length of your credit history will not change, and your credit score will not get lower.

In some cases, it is possible that your credit score will improve.  Paying off accounts that you have late payments on can, in some cases, lessen the effect of those past mistakes.  It’s important to realize that this is not true for everyone, and it is also not the case for every account with late payments.  

<p data-sp-element=”content”>After you have gone through the debt consolidation process, being able to make a smaller payment towards your debt every month can help you to get in control of your finances.  If you find yourself frequently forgetting to pay bills, then consolidating your loans into a single payment can help you significantly.  For these two reasons, many people report having a higher credit score a year or more after going through debt consolidation, as long as they make their payments on time.

About Author: Debt Help Desk

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