Credit Scores and Debt Consolidation Loans Relationship

The financial world is an interesting place because just about everything is related in some way. Every single thing that you can do in your financial life is recorded somewhere and one of the best places to look for that sort of history is your credit report. With that in mind, you have to consider how your debt relief actions will impact your credit score. For the most part, people with a need for debt consolidation will probably have a lower credit score than they want. That is because a large amount of revolving debt and a lot of open accounts will bring down your score quickly. So how does debt consolidation interact with credit scores?

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Relieving revolving accounts through consolidation programs

One of the primary things that will bring down your credit score is when you have a bunch of open accounts against your record. When all of these accounts are open, it does not matter if they are all past due or if they are in good standing. Though it is obviously better to have the accounts in good standing, your score is hurt a little bit by just having the accounts open at all. By going with a debt program, you will be able to close down a number of these accounts, which brings about a higher score. The one, single large loan looks much better on your credit report than a bunch of small accounts do.

Getting out of debt over the long haul

The amount of your debt is something that brings down a credit score, as well. Since that is the case, one of the only ways to really bring your score back up is to attack the debt directly. That means that you have to start working on the capital of the loan, instead of just paying back the interest. Consolidation loans help you do that because they provide lower rates and thus, more of the money you pay is going towards the loan amount. You can eliminate the loan more quickly and when all of that debt has evaporated, you will have a higher credit score.

Avoiding missed and late payments

Nothing will bring down your credit score more quickly than missing a bunch of payments. For most people, debt is an issue because there are so many different creditors and details that you have to remember every month. When you go with consolidation, you will only have one payment to worry about each month. That is a good thing for you and it is an even better thing for your credit score, as making this payment on time every month will bring your score up marginally.

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