Will Debt Consolidation improve My Credit Score?
If you’re having trouble with paying your debt, a debt consolidation loan can be a good way to get your payment down to something that you can afford to pay. Most of the time when you accept a lower payment from your credit card company, though, it lowers your credit score. Is the same thing true for debt consolidation?For many people, getting a debt consolidation loan is a relatively simple process. You’ll be put in contact with a debt counselor who will help you find a debt consolidation loan with a payment that you can afford. In many cases, your new loan will have a lower interest rate than your credit cards, and it will give you more time to pay of the debt. That means you’ll get a payment that is significantly less than what you’re paying now.A lot of people wonder, however, if this help comes at the price of their credit score. After all, most banks will place a negative notation on a person’s credit report if they take advantage of any type of help that is offered. Fortunately for borrowers, debt consolidation doesn’t have a negative effect on a person’s credit score.As far as other banks are concerned, debt consolidation is similar to refinancing a debt. Taking out a new loan to pay off your old debts is considered to be a credit score neutral activity; you’re not taking on any extra debt. Therefore, the majority of people won’t see any change on their credit score.In some cases, however, paying off delinquent accounts can cause these accounts to be deleted from a credit report. While this doesn’t happen in every case, those people who are fortunate enough to have this occur report that their scores are improved by 50 points or more practically overnight.More commonly, people see a small improvement in their credit score as the number of accounts that they have open decreases. Of course, this is only true in cases where people immediately cancel their old cards after going through the debt consolidation process. While having fewer accounts can improve a credit score, the gains are modest. A typical consumer can expect to see their score rise by ten points or less.