Does consolidating debt affect credit score
Not only does it affect your spending ability, it also has a direct impact on your credit score and a direct impact on your ability to borrow money or pay a low insurance rate.The amount of debt you have is one of the biggest factors that goes into your credit score; your level of debt is 30% of your credit score.But keep in mind that only the balances on revolving lines of credit are factored into your credit utilization ratio; by moving your credit card debt onto an installment loan (the personal loan), you’re shifting it in such a way that it will have a minimal impact on your credit. If you choose to consolidate with a 0% APR card via a balance transfer, the picture is a little more complicated.On the one hand, opening the 0% APR card will increase your available credit, which will help your utilization ratio.This will help simplify your financial life and make it easier to plan your budget.In addition to the advantages described above, consolidating your credit card debt could also help your credit score.
The higher your credit card balances are relative to your credit limit, the more it hurts your credit score.
If you choose to consolidate with a personal loan, you’ll likely see a jump in your score within a few months.
This is because, in doing so, you’re quickly reducing your credit utilization ratio.
Even if your debt-to-income ratio is low, if your debt hurts your credit score, you could still be denied.
(Note that your income isn't a factor in your credit score.)How you handle debt also has an impact on your credit score.
And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free. There are a lot of benefits to this move, including the potential to give your credit score a boost.