Do Debt Consolidation Loans Hurt Your Credit Score?
Consolidating your debt using tools such as second mortgages and refinancing can be a great way to
lower you monthly interest payments and to help you get out of debt faster. Sometimes however,
people are concerned that getting a consolidation loan is going to lower their credit score.
Well, the truth is that it can – at least in the short term.
The good news however, is that consolidation loans can be a powerful tool in helping you improve your
credit over the long term.
Let’s take a look at how this works.
Debt Consolidation Loans Can Lower Your Credit Score in the Short Term
Whatever method you use to consolidate your debt, it is going to mean opening a new credit account
before you can actually transfer your debts from your high interest accounts. Whenever you open a new
account, lenders see this as a risk. As such, it is going to temporarily lower your credit score.
Debt Consolidation Loans Can Improve Your Credit Score over the Long Term
You know now that when you open a new credit account, it is going to cause your credit score to dip.
But as those accounts get older and you continue to make the payments on them, you score will start to
gradually come up again.
As long as you don’t rack up new debt after your consolidation loan, you will be increasing your available
credit. When you have lower credit utilization, this can help to improve your score – not to mention
counteract some of the negative initial effects of opening a new account.
Finally, if getting a debt consolidation loan helps you to pay off your debt more quickly, that is nothing
but good news for your credit score.
A Word of Caution
A debt consolidation can be a bit of a double edged sword. It makes it possible to get out of debt faster,
but since you now have more credit available, it may be tempting to go even deeper into debt.
Therefore, if you do decide to consolidate, you need to be sure that you have the determination to get
and stay out of debt.
Contact Matrix Mortgage Global Today
If you would like to learn more about your options for a debt consolidation loan, contact Matrix
Mortgage Global today. One of our agents would be happy to assist you.