While credit can be good and convenient, it doesn’t take a while before you realize you’re making late payments or taking on more than you can afford. Once you get to the point where you can no longer handle monthly repayments, you think about consolidating your debt.
Does Consolidating Debt Affect Credit Score?
The truth is that your credit score will be affected once you consolidate your debt. For instance, it might take a hit for the short term since you have new credit, but as long as you stick to making monthly payments on time and don’t acquire additional debt, your credit score should improve.
Still, that might be a slippery road, especially if you have a lot of things to spend on. There isn’t a quick fix to rebuild your credit score, and it often takes time and responsible management forward. Here are some things you can do that can help:
1. Keep Some of Your Credit Card Accounts Open
Once you’ve consolidated your debt, you might be tempted just to close all your credit card accounts. While you should close some of them, especially the new ones, you should still leave some open.
If you want good credit history, you need to continue having a history of using credit. So, it might be better to hold on to some of your credit card accounts, especially those with records of payments. Keep at least one of two of your oldest accounts open.
It’s also better to report multiple credit products on your credit report. After consolidating your debt, you’ll have both the loan or mortgage and the credit card. Moreover, cancelling all your credit cards right after debt consolidation might leave you with a lower credit score in the future when you need to apply for a new one.
In addition, you should not be tempted to use a credit card so that you don’t gain additional debt. If you get tempted, don’t carry it with you and sometimes make a small purchase to keep the account alive.
2. Make Your Payments On Time
There’s no better way to rebuild your good credit than to meet your monthly scheduled payments. Experts say that paying your bills and debts on time, every time is the single best thing you can do to improve your credit significantly.
3. Be Smart with Using Credit
Even when you’ve consolidated your debt, it doesn’t mean you should stop using credit completely. It’s still important to consider how it affects your credit score. For instance, you need to pay the entire balance of any new purchase on time. If you don’t have the money for it, reassess whether you really need to make that purchase.
You should also keep the total amount you owe to less than 35 percent of your available credit. Lowering your credit limits won’t really help, and it’s much better to carry a high percentage on a card with a lower limit.
You should also stop applying for new credit. Even if you don’t use it, it can still negatively impact your credit score.
Following these simple tips on how you can significantly improve your credit score lets you rebuild it even after consolidating your debt. While the latter can be an excellent financial move, especially if you have debt all over the place, you also need to think about how it affects your credit and how you can immediately improve it after.
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