It is well understood that debt consolidation takes all of your debts and combines them into one monthly payment, but how does it affect your credit, and will it affect your ability to borrow again in the future?
This is a difficult question, and depends on your financial situation. If you get a debt consolidation loan and that allows you to repay your debts more quickly than if you didn’t consolidate, a debt consolidation loan has a very positive impact on your future credit. You have demonstrated that you can repay your debts quickly, which makes you look very attractive to lenders in the future.
However, there is a downside to getting a loan, and that is the application process itself. Each time you apply for a loan a record of your application appears on your credit report. If you apply for many loans in a short period of time, your credit score will be reduced, because they lenders assume that if you applied for many loans, you must have been turned down for most of them, and therefore you are not a good credit risk.
Please note that you may have innocently applied for many loans because you were shopping for the best rate. Unfortunately the lenders don’t know that, so you will look worse as a result.
In short, debt consolidation will affect your credit and your debt, so to make it a positive experience, don’t apply for more than one or two loans in a short period of time.
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