How does Debt Consolidation affect Credit Scores?

Getting on top of your finances can – sometimes – feel like an impossible feat, but there are some straightforward ways to do this. A debt consolidation loan could be an option that works for you. After all, it allows you to pay off your creditors and seize back control over your own financial wellbeing. It is really important however, and this is all part of you getting back on track, that you understand everything about a loan like this and how it might impact your credit score.

Can debt consolidation affect your credit score?

What’s your current credit score? You might already be finding it hard to make your monthly payments to multiple lenders and you’re possibly not ready to think about your credit rating. But your financial struggle might already be reflected in your credit score. Constantly being in debt or missing repayments will impact your credit rating for the worse.

You may feel that planning for your financial future is out of reach when you’re living with your tricky financial present, but it is worth considering. There’s every chance that you will need to apply for future loans, credit or a mortgage, but you could be refused if you have a poor credit rating.

This is when a debt consolidation loan could really work for you – and for your credit score.

Would debt consolidation affect my credit scores?

When you first take the loan out, your credit score might take an initial dip, but you are opening a new line of credit. What you will do next, however, can send your credit rating in the right direction.

  1. Pay off your debt and close those accounts

Use the loan money for what it was intended – pay off your debts with multiple lenders and close those accounts. You will reduce the number of accounts in your name and only have one creditor to focus your energies on. With one lender, one monthly repayment and one interest rate, it will be easier to keep on top of things.

  1. Your credit utilisation (CU) ratio will improve

Your credit utilisation ratio shows your available credit. One credit card with a £10,000 credit limit, and a debt of £7,000 would give you a ratio of 70%. By closing your accounts and repaying your loan, your CU ratio will decrease. The recommended level is below 30%.

  1. Your payment history gets better

Simply making regular in-full repayments on time to your one creditor looks great on your record.

Why condense all your debts into one loan?

  • It will improve your financial budgeting each month
    You can group all your borrowing into one monthly repayment, which is easier to manage.  So choose the best consolidation loans of 2020 now!
  • Reduce your overall repayment costs
    A loan could actually help you to avoid paying more money each month if the interest rate is less than the combined total interest of all your debts.
  • A better personal credit score
    You are more likely to repay one loan payment on time every month, rather than many confusing payments across the month. This will then prove that you are a responsible borrower, which will eventually improve your credit score.

 

Debt consolidation and credit scores

Working on improving the things above will help your credit score. It might not be a quick fix and you may need to give it some time, but every payment on time and in-full will take you one step closer to repaying your debt and increasing your credit score.

A debt consolidation loan could help you to do this. It gives you the financial support you need to address your debt with multiple lenders and then concentrating one just one creditor and one monthly payment.

Your credit score might take a dip at first but you can come back stronger by maintaining your payment schedule and looking towards your long-term financial wellbeing, making it easier to take out loans or even a mortgage in the future.

This is how many people take back control over their financial health.

Could I apply for debt consolidation?

Debt consolidation could be the answer you’ve been looking for. One of our experienced advisors can help you to understand if a loan like this is right for you. There’s no cost and there’s no obligation to follow our advice.

Complete our quick online application and our advisors will look into it for you.

Contact us today

We’d love to help you move towards a debt free future. Our friendly team will offer no-obligation advice and answer any questions you might have about joint debt consolidation loans – just call us today.

Why condense all your debts into one loan?

  • It will improve your financial budgeting each month
    You can group all your borrowing into one monthly repayment, which is easier to manage.
  • Reduce your overall repayment costs
    A loan could actually help you to avoid paying more money each month if the interest rate is less than the combined total interest of all your debts.
  • A better personal credit score
    You are more likely to repay one loan payment on time every month, rather than many confusing payments across the month. This will then prove that you are a responsible borrower, which will eventually improve your credit score.