Consolidate Debt To Improve Your Credit
When you consolidate your debt you stand a pretty high chance of improving your credit in the long run. Of course, the short run will result in a small dip in your credit score because you may be using a consolidation service that requires you to close all of your credit accounts. On the other hand, you might see an immediate increase in your score if you use a consolidation loan or transfer your credit balances to a low interest credit card.There are several reasons why your credit will go up when you consolidate your debt which include paying off the debt, making on time payments, and paying less interest.
Paying Down Your Debts. Having a lot of debt makes your credit score go down. Just as having a lot of available credit makes your credit score go up. So, when you consolidate your debt you make other credit available to you and end up making a single monthly payment to one credit card, company, or bank.
That means that your one monthly payment will pay more on the principal of the debt rather than just on the interest like what was happening when you were making all of those minimum monthly payments. As you make more payments your debt starts shrinking and of course you are not using your other credit cards either now so your debt to available credit income ration starts decreasing on a monthly basis. In turn, your credit score starts rising a little bit every month until you could qualify for a home mortgage with low interest rates! Of course this doesn’t happen over night, but with good planning and on time payments your debt will decrease and your credit score will increase.
Making On Time Payments When you consolidate your debt you only have a single monthly payment to make. As a result you won’t have the difficulties remembering due dates, minimum payments, and the like, and can simply make your payment on time ever time. Another benefit of consolidating your debt is you can frequently set up automatic drafts from your checking account for your monthly payment. That way the right amount gets paid every month right on time. When you make on time payments your credit score will benefit and rise!
Paying Less Interest Yet another benefit of consolidating your debt is that you will end up paying overall less interest. When less interest is applied to your account you will be able to pay off the balance significantly faster. And, the faster you pay off your debt the higher your credit score rises. As you can see there are many aspects of your credit score and only a few are touched on here. However, the more you work at paying off your debt the more you will be rewarded with a higher credit score.