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Monday, September 22, 2014

 

Debt Consolidation And Your Credit Rating

Did you know that debt consolidation can
actually improve your credit rating?


 
Debt isn't a high commodity. People aren't looking for a place to sign up for more debt. In the U.S., over 30 million consumers’ credit scores are below the score of 620. Nonetheless, personal debt can be a debilitating situation.

Although getting a 40% job raise or winning the lottery are great ways to solve your financial woes, there are other, more realistic solutions.

How Debt Consolidation Can Help

Since credit scores represent purchasing power, improving your rating is extremely important. For example, there is a direct correlation between the interest rate a homebuyer and car buyer will pay. In other words, a low credit rating represents a high interest rate financing.

On the flip-side, a high credit score symbolizes excellent buying power. For someone planning a large purchase such as a home or new car – beefing up one’s credit rating is a consumer smart strategy.

Over the years, debt consolidation loans have been the leading way Americans have been able to quell their personal financial challenges. Just as all financial institutions are not equal, the same is true of debt service organizations. Nevertheless, the right debt consolidation company can impact credit in a positive way.

Since bills are immediately paid, a credit scores can be raised via a debt consolidation loan.

Here are 5 simple steps to upgrading your credit rating and identifying whether you can benefit from debt consolidation:

  1. Request a copy of your credit report

    Before you opt for a debt consolidation firm, it is a good idea to review your credit report. Since a credit score can be tarnished by false information, it makes the best sense to obtain a copy of your credit report.

    There are three reporting agencies that will provide a complimentary credit report (Experian, Equifax and Trans Union). Legally, Americans are entitled to one complimentary or free credit report per year.

    Payment history accounts for 35% of all credit scores. A monthly late payment can reduce a credit score between 50 to 100 points.
     
  2. Calculate the total of your bills in relation to your monthly income

    Identifying how much you owe in your current monthly income is the second way to determine whether a monthly budget versus debt consolidation is necessary. If the total amounts of your bills exceed fifty percent of your monthly salary, debt consolidation offers a surefire way to rapidly raise your credit score.
     
  3. Develop a payment plan

    Since banks and credit card companies report the outstanding balance of consumer’s bills to the credit bureaus, the minimal amount paid does not help augment a credit rating, so it's best to pay off your bills completely.

    It’s a perfect example of how using a debt consolidation firm may immediately improve a consumer‘s rating. Paying your bills on a timely basis is the key to raising your credit score and rebuilding your credit rating.
     
  4. Pay-off your bills

    When financial and lending institutions evaluate and approve credit, they prefer to see low debt balances on credit cards. The wider the gap, the better the chance for gaining approval of a low interest rate. (It is especially important for you to raise your credit rating to over 620).

    Debt consolidation offers a quick remedy. Since debt consolidation companies negotiate interest rates to be waived, a consumer has the ability to pay their bills faster. Consequently, a credit score can be augmented rapidly.

    Credit score boosting strategy: Consumers can raise their credit rating by charging less and paying the entire balance each month.
     
  5. Avoid Bankruptcy with a Debt Consolidation Loan

    Bankruptcy is the antithesis of debt consolidation. As simple as bankruptcy may seem, it can devastate any credit score. Not to mention, the effects of bankruptcy last between ten to 13 years.

    In recent news, the United States federal government has revised legislation regarding bankruptcy. As a result, filing bankruptcy carries many stringent requirements.

    In a nutshell, bankruptcy will drastically lower a credit rating by 200 points or more.
Conclusion

Debt consolidation loans feature a rapid means for getting out of debt. Since all bills can be paid off – entirely, a credit rating can be easily elevated. As buying power is impacted by credit worthiness, consolidating debts via a loan is a smart way to beef up your credit score.
 

About the Author:

Holly Bentz is a finance writer and a contributor to About Personal Loans.


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