Is the debt consolidation process bothering you a lot? You are curious to understand the effect of this process on your credit report. After all, it is going to be a major step in resolving the existing debt problem.
This is a way of clubbing all your debts together for payment via a single loan. It might invite a hard search on your credit which is why your scores might feel an impact. However, it will totally depend on the type of lender you have approached.
Since exceptions are possible, you can get debt consolidation with bad credit from a direct lender. The two noticeable things about this financing option are that poor scores will not motivate the loan provider for a hard inquiry and your credit history will not suffer anything.
Getting rid of troubling debts is possible even when your credit scores are not perfect for borrowing. This has become possible because of the new breed of loan providers who have a refined approach towards lending.
The reason why debt consolidation is advisable is that it can downsize the monthly payments you are handling while managing multiple debts. Besides, it can assist you in upgrading your credit scores given that you follow a specific regime to meet payments on time.
Dig deeper about this process by reading through this blog.
Will debt consolidation hurt or improve your credit score?
This question is quintessential as borrowers are concerned about the kind of damage they might have to deal with because of debt consolidation. Whether or not one will have to bear the brunt will depend on a few aspects like the choice of the loan provider etc.
The extent of the effect on your credit scores
If you are just taking care of your bare necessities, it indicates that your savings are not adequate or might even be zero. It is also prominent that you are struggling a lot to complete payouts on time. For this reason, a huge pile of debt has already been racked up.
When you are already not paying your bills on time, it will ultimately reflect on your credit report. Your scores will be hurt if you do not pay attention to this matter. One of the ways you can escape this problem is by applying for a loan.
However, the question is “who would trust you to lend money?” The loan providers will keep a distance from you because of your current financial scenario which is not great. On top of this, you have poor scores.
There is hardly any way left you can confirm about sure shot loan payments. You are already aware of the decision of the lender. It can motivate you to give up on borrowing which should not be the case because you can get no guarantor loans from a direct lender.
While some lenders will turn down your request straightaway and some will put up an additional requirement like a guarantor, you can manage to overlook both by considering the third option. This way, you do not have to depend on any other person to repay loans.
Consolidating debts is a productive way to keep the pending payments within your control without missing them out. Moreover, getting better rates is possible when you are applying with a direct lender.
Ways debt consolidation affect your credit scores
You will notice that the initial impact of this process on your credit report is not at all good. It can even encourage you to prevent this way of managing the debt problem. However, the long-term effect will be worth it and you will be fully convinced.
When you take the help of a loan to reduce the debt volume existing in your life, you cannot ignore the following incidents. They can surprise you with their effect on your credit score.
· Attending multiple lenders at the same time
The actual procedure is paying off pending dues of many lenders at the same time with the help of a single lender. It might seem scary as you will try to attend to all payments together. However, debt consolidation works in this manner and there is no exception to its rule.
After completing the payments, you can close the accounts. In this manner, you can gradually reduce the number of accounts that you might be holding. It means you will have a lesser number of creditors to attend.
You can be in a better position by following this process. With time, you can be completely free from debts.
· Improvement in credit utilisation ratio
It is something people oftentimes fail to recognise in their hustle to sort out the debt problem. It would be great if you could bring down the credit utilisation ratio below 30%. It will show that you are responsibly handling the available credit.
This will leave a positive impression on your credit report. It will also start improving alongside your payment history which is also a crucial element in the credit records. With these two factors getting better, your credit scores will also upgrade.
Reasons why debt consolidation is a better option
This process can help you stash money by letting you focus on a single payment. Unlike past, you do not have to handle a lot of payments at the same time. Besides, when you have a single loan to manage, you will have to pay a single rate of interest.
Moreover, you can negotiate with loan providers for better rates. Above all, you do not have to worry about interest rates much if you have got in touch with a direct lender. They fix practical rates to help borrowers like you afford payments.
The bottom line
It does not matter if you want to try other ways to tackle debts, you can always compare the outcome with this process. You will not be disappointed as the results will be convincing in the case of debt consolidation.
Furthermore, your payments will be simpler to manage as you will have a single loan. The chances of making mistakes and forgetting about payments will be low when you have a single payout to address.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
