Debt Consolidation and Credit Rating

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Debt consolidation services usually involve the combination of multiple unsecured debts, usually from different sources into one account for the purpose of easier and painless payment for the debtor. Debt consolidation offers the debtor the ease of a single repayment option. Usually an evaluation is done by the debt consolidation company, this evaluation takes into consideration your present income and your expenses and it comes in handy during negotiation for a reduction in the interest rate or even the principal.

Before you go about this process, it would be wise to be aware of your current standing in terms of your credit score, here is a list of free credit score sites to get you started.

But have you ever wondered if there is a relationship between debt consolidation and credit rating, well in fact there is. For instance if you are someone who has a lot of credit card debts, then these debts might be affecting your credit rating adversely, one thing about credit cards is if you have a balance on a credit card that is more than twenty five percent of your credit limit you get penalized by a reduction on your credit rating. This is regardless of whether or not you are making payments on time. So if you chose to get debt consolidation for loans that include credit card debts then you are actually boosting your credit score.

This also works for other type of loans, such as a car loan or a personal loan. Like credit card loans credit companies do like to see that you have payed off these type of loans and obtaining debt consolidation for these type of loans will actually have a positive effect on your credit rating.

If you have multiple debts from different sources and there are weighing you down then you probably need to consolidate them. The key to obtaining and maintaining a good credit rating is to reduce your credit card spending. It does no good to obtain debt consolidation and then run your credit cards up to their limits again.

Debt  consolidation and Credit rating

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