How Debt Consolidation Can Affect Your Credit

Debt consolidation may be positive or negative impacts on your credit score.

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The impact of hard inquiries could be a negative effect on your credit score.

If you are applying for a balance transfer credit card or personal loan to consolidate debts, the lender will conduct a thorough inquiry into your credit. This could result in your credit score suffering a temporary loss.

The average age of credit will decrease.

As your credit card accounts get older and have a history of punctual payments the credit score will probably rise. If you open a fresh account you’ll reduce the average age of your account, which can reduce the credit rating.

Your credit profile will be more diversifying

Your credit score is based on the kind of accounts you hold such as loans, credit cards, or mortgages. Since lenders are in favor of having multiple accounts, opening up a new account with a personal or credit card could increase your score on credit.

You’ll lower your credit utilization ratio

The credit utilization ratio represents the number of credits you’re using, divided by how much credit that is revolving that you have. Because a debt consolidation account could increase the credit available to you this could reduce your ratio, and improve your credit score.

In time payments can help enhance your payment track record

If you are able to make timely payments on your credit card the credit rating will slowly increase. The payment history is the main aspect in determining your credit score therefore, make sure that you don’t fail to make any payment.

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