Credit Repair Debt Consolidation
Debt consolidation, while sometimes very necessary, can have a short and a long term effect on your credit score. Understanding the effects on your credit score, if you choose debt consolidation measures, will help you prepare for the future and it will help prevent you from being tripped up by unexpected surprises.
You can avoid some pitfalls that many consumers face and make the road to improving your credit a lot smoother. When you fully understand the short and long term ramifications of availing yourself of credit repair debt consolidation offerings, you can make an empowered decision about whether or not such an option is right for you and your needs.
First, when you opt to consolidate your debts, you will be borrowing money to pay off any principles and interest associated with existing loans and/or credit cards that you may have. You will use a loan to pay off all of your debts and then you will be responsible for paying off the loan that is utilized to consolidate your payments. This basically means that you are now paying the value of all of your debts with additional interest. Consumers find an advantage in paying off existing accounts and bills and dealing with one, easy payment. Generally, the interest rate offered with a credit repair debt consolidation loan are also considerably lower than the interest rates associated with individual credit card accounts and other loans, so over the long term, the consumer saves money while paying off his or her debts.
However, the initial request and approval for a credit repair debt consolidation loan will lower your credit score. Why? Your credit score is affected whenever a creditor or lender makes a query about your score: this is because it is believed that a lot of credit score queries is an indication of financial irresponsibility or desperation. The affect is only short term however, and your score will once again change when you begin paying off your debts.
After paying off debts, an immediate, long-term impact on your credit score will be witnessed. All of your accounts will end up having a balance of zero and this indicates that you are a responsible consumer who pays his or her bills off. If the consumer has had one or more credit cards for example, and they were maxed out or nearly maxed out, paying them off completely has positive long term affects on one’s credit.
Once some of your accounts, like credit cards, have been paid in full, you might think that closing the accounts is a good idea. This is not necessarily true. If you have one or more accounts that have existed for several years, you may want to keep them open. Long standing credit lines that illustrate a period of good standing continue to contribute to an improved credit score.
A common problem may arise once a person has paid off all of his or her existing accounts: the consumer may feel that now that the lines of credit are cleared up, that they can be used again with little regard as to how much they are used or how much is spent. So it is imperative that the consumer who makes use of credit repair debt consolidation realizes that the act of consolidating one’s bills is only a short term solution, not a way of life, and that he or she must work hard to keep spending and bill accumulation under control.
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