Does Debt Consolidation Ruin Credit Scores?
Debt consolidation will not ruin your credit score. As a matter of fact, it will likely even help your credit. Okay, there is a situation where it could ruin your credit score. Just like any other debt you have ever had, if you don’t make payments on your consolidation loan, it can hurt your credit. Getting this type of loan in and of itself, however, will not ruin your credit.
When you take out a loan to consolidate your debts, the creditors included in the loan will be paid in full. This will actually help your credit because these accounts will show as paid accounts. Any creditor that shows as a paid off account, regardless of whether it was previously 30, 60, or 90 days or more late, will have a positive effect on your score.
While your credit may not have been perfect prior to any consolidation loan, the way you manage your payments after getting the loan will have a direct effect on your credit score. Accounts reported as 30 days late will bring down your score a little, but it is really the accounts that have been reported as 60 days or more that will have a greater impact. The longer the delinquency period, the worse a credit score will be. Any account that shows as more than 120 days late will likely result in a charge-off, which will have the worst effect on your credit.
Your previous late payments on any loans paid off by your consolidation loan will not automatically disappear. The late payments will still appear on your credit report and have a negative effect on your credit. However, the longer you pay your consolidation loan in a timely fashion without any late payments, the better your credit will become. This combined with the fact that your previous loans will now be shown as paid accounts will have a positive effect on your credit score.
As you can see, a debt consolidation loan will not ruin your credit score. What will ruin your credit score is late payments. Any time you miss a payment to a creditor, whether it is a loan that was used to consolidate your debts or any other creditor you have, it will negatively impact your credit. Conversely, any creditors that are paid on time, or paid in full prior to their maturity date, will have a positive impact on your credit score.
NOTE: there are reputable debt consolidation companies in the market, so you must research and compare thoroughly to find the one that meets your specific financial situation. Specialized advise from a seasoned debt counselor is always suggested.
Hector Milla runs the Reputable Debt Consolidation Company website – where you can see his best rated debt consolidation service.
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