Student Loan Consolidation Center

Have you ever wondered, "does consolidation affect my credit rating?" If you have multiple loans or debt that has taken over your life and you want to do something about it, you might consider the benefits of a debt consolidation loan.  Before we discuss the question, does consolidation affect my credit rating, we first want to talk about what a debt consolidation loan is.

A debt consolidation loan is actually a personal type of loan whereby a lender will loan money so a person can pay outstanding bills.  In other words, let us say you had a number of loans, credit card bills, doctors’ bills, and so on, taking all your money every month.  Instead of being swallowed alive, you could consider having all your outstanding debt rolled into a single loan, which will help eliminate stress while lowering your monthly bills.

You will find that a number of different debt consolidation loans exist, some being secured and some unsecured.  With a secured consolidation loan, this means that you are required to have some type of collateral as protection against the loan.  This might be money in a savings account, a car, home, etc.  With an unsecured type of debt consolidation loan, there is no collateral needed, simply your signature.  Of course, being qualified for this type of loan takes a number of factors into consideration.

You also need to think about whether a debt consolidation loan is actually the best choice for your situation.  Some things to think about in making this decision would include:

• Having numerous loans from several different lenders
• Struggling with monthly payments
• Interested in lowering monthly payments
• Wanting to use the equity in your home as a way of getting out of debt
• Trying to secure a loan that has a much lower interest rate
• Wanting to extend the schedule of the loan

Now, if you think you might be interested in something such as this, you would need to ask yourself, does debt consolidation affect my credit.  The truth is, like any other type of loan, a debt consolidation loan is reported to the three main credit reporting agencies.  Therefore, the date the loan was secured, the amount of the loan and your payment history will be maintained.  This means that if you were to miss payments or be late on payments, your credit rating would be affected.

Before you lock into any debt consolidation loan, you want to make sure you choose the right lender.  Otherwise, you could find yourself in a much worse situation, which would definitely have an effect on your credit score.  Some of the factors that you as the borrower need to look for include:

• Fees – Every lender has different fees.  Therefore, you want to talk to more than one lender, looking for the one that will offer the lowest or most competitive fees.  After all, the purpose of looking at a debt consolidation loan in the first place is to get ahead of finances, not in further trouble.
• Interest Rate – Again, different lenders will offer varying interest rates.  Additionally, you will likely discover that the interest rate attached to an unsecured loan is actually higher than one on a secured loan.  Typically, a debt consolidation loan will end up with an interest rate anywhere between 7% and 9%.
• Payments – One of the main goals people have when going through a debt consolidation loan is to lower monthly payments.  Before you sign on the dotted light, have the monthly payments calculated to determine if the loan will actually make your finances lighter.
• Credit Rating – Again, when asking, does consolidation affect my rating, the truth is yes.  Remember, this type of loan is no different from any other type of loan.  Therefore, the way in which you handle the loan over its life will help improve your credit score or cause serious problems.  This means making sure you always pay on time and pay the full monthly payment due.

Before getting involved with a lender for a debt consolidation loan, look at the amount of money you owe to determine if this is actually the right solution.  You should also create a solid budget that uses an equation of debt to income.  If you are unsure the right way to create a budget, you can always meet with a financial advisor to assist.  From there, you and the lender will need to go over all the information to make sure you are borrowing the amount of money actually needed and nothing more.  This way, you have the opportunity to get ahead financially while maintaining a positive credit rating.