Is a Debt Consolidation Loan Bad for Your Credit?

Is a debt consolidation loan bad for your credit? There are several determining factors as to whether or not this kind of loan will affect your credit score. The following habits and factors should be considered before you decide to consolidate your debt.

If You Have and Use Numerous Cards

If you are in the habit of securing a new credit card every few months, another loan on your credit may affect it negatively. If this is a regular habit, then you will need to curb that habit when you consolidate your debt or you will simply continue to have the same problem. Consolidating your loans may give you a false sense of having more spending power.

If You Do Not Have Collateral

Keep in mind that a loan consolidation will most likely require collateral. Credit cards are unsecured and if you find yourself unable to pay the consolidation loan payments, then you will possibly lose that collateral. Naturally, the appearance of the loss will negatively impact your credit score.

If You Apply for Other Credit in the Future

With a debt consolidation, you will still have the same amount due, only now the amount will be due over a longer period of time. This extended period of payments will be present on your credit report longer, which may affect your ability to secure additional credit in the future.

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