Posts Tagged ‘Financial Crisis’

Posted on May 25, 2009 - by admin

How Debt Consolidation Affects Your Credit Score

Many people that have considered debt consolidation as a way of getting out of a financial crisis have wondered how it would affect their credit score. The truth is that in most instances it will greatly increase your credit score and will not hinder you in anyway from obtaining a loan in the future which you might need later on for a housing project or a life insurance plan.

When you consolidate your debts you’re literally just paying them off earlier than is required by the lender. You’ll still be paying the exact amount that you owe the lending institution, so the payment will result in a positive rating on your credit score.

However, there is one thing to consider when calculating any affects on your credit rating. A small percentage of your rating is based on the length of your credit history. This category actually makes up for about 15 percent of your overall score.

Even if you’ve made every payment on time, if you’ve got a short credit history, this can affect future loans. To avoid this problem, some experts advise that you pay the balances off on your credit cards, but keep one or two of your oldest accounts open. This will help you retain the length of your credit history and still eliminate the actual debt.