Free Credit Guide

Is It Possible to Improve Credit Score with a Debt Consolidation Loan?

Almost all individuals in the U.S. are infected with the habit of making the indiscreet use of credit card that eventually incur them an overwhelming debt. If you are also drowning under the sea of credit card debt and want to come out of it, pursue credit card debt consolidation. Take out a debt consolidation loan with a lower rate of interest and consolidate all your credit card bills into that loan.

However, in this context it is to be mentioned that often a question cloud in people's mind whether a debt consolidation loan can improve their credit score or not. To answer this, debt consolidation loan is designed to combine all your debts into one debt so that it becomes easier for you to pay off the debt. It enables you to handle one loan instead of multiple bills. Besides making your debt payment manageable, it also reduces your monthly payment as it offers you a lower rate of interest than your other debts that are consolidated. The long term goals are to keep your accounts current, lower your monthly payments, and prevent your credit score from falling. But that is not always the case in short term.

When you use a debt consolidation loan for paying your other credit accounts, it gets reflected in your credit report, which may have a temporary negative effect on your credit score. But this does not increase the total amount of debt on your credit score which is one of the primary factors. Another significant factor is, it improves your credit score provided you can make your new payments on time

However, your credit score may get hurt in certain cases, especially when you choose a company who also negotiates with your creditors to reduce the principal amount of debt. This may save your money, but it will be listed on your credit report as a failure to pay off the full balance. Also, if your account debts are not paid while the amount owed is being negotiated, your credit score will get hurt.

Usually, people tend to use their home as collateral in order to obtain a consolidation loan. This loan definitely helps you to gain control of your debt, but if in case you default on repaying the loan you will lose your abode. This loan even has some tax advantages that allow you to write off interest, but to avail that you may have to pay points on the loan that could negate the benefit.

Finally, it is to caution you that there are many companies who charge a hefty amount promising you to solve your debt problems by negotiating with your creditors or providing you a consolidation loan, but ultimately do nothing. So you must shop around and find out a legitimate and trustworthy company who has your interest in mind, before signing on an agreement with any company. You may also contact your local consumer protection agency or call the Better Business Bureau in order to find out whether the company shares a fair image in the market and whether the company has a lot of consumer complaint or not.

Therefore, in conclusion, although a debt consolidation loan may affect your credit score for short period of time but it will improve your credit score in the long run provided you keep your current payments update.

Get Your Free Credit Revolution Book Here!

Written by three heavy-hitters in the Credit Repair field with over 40 years of combined experience, this book pulls back the curtain on the inner- workings of the credit reporting world and outlines what you can do to make it work for you. This exclusive offer is available for a limited time only.

What's inside this 151 page free book?

Page 10 - The truth behind statements like "Only time can cure bad credit"
Page 41 - Six real-life stories prove credit reporting is not black-and-white
Page 73 - Four tips for dealing with creditors while you repair your credit
Page 94 - The real reason why bad credit can stay on your reports 7 years
Page 104 - Three things you think would raise your credit score but do not
Page 111 - Five life events that can unfairly destroy your credit rating