Debt Consolidation Loans in Perspective: How Your Credit is Impacted

When considering aggregating your outstanding debt, it's important to put debt consolidation loans in the proper perspective. Read the following  below  to better understand how your credit can be  impacted  and what to do before choosing  to consolidate.

  • Tidy Up Your Credit Report - What you'll wind up paying for a debt consolidation loan depends more on your credit score than anything else.  Get a free copy of your credit reports from the three major credit reporting agencies of Experian, Equifax and TransUnion.  Examine it thoroughly for any errors, report the errors if you find any, and fix any problems before you apply for any debt consolidation loans.
  • Pay All Bills Promptly - Your credit is impacted by whether or not you pay your bills on time.  In fact, as much as 35 percent of your credit score is based on this factor.  If you have any missed payments during the last six months before you apply for debt consolidation loans, this will negatively affect your credit score.  It will also increase the likelihood that you will either pay a higher interest rate or be turned down altogether.
    Eliminate or Reduce Credit Card and Other Debt - Another one-third of your credit score is calculated on how much of the credit you have available to you you've already used.  If you have a $12,000 credit limit on a credit card and have already used $6,000 of it, you've used up half of your available credit.  When your debt-to-available credit rate exceeds 50 percent, your credit score suffers.
  • Avoid Any New Credit Card Debt - Shred all new credit card applications that come in the mail.  When you apply for debt consolidation loans in the current economic and financial market, the lender looks at any inquiries on your credit report history.  Your credit score can be reduced up to 12 points for each inquiry.

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