Does Debt Consolidation Affect Credit Adversely?

When people fail to manage several debts and are stressed out with their debt load, debt consolidation is the right option. It is a debt relief process, where you can amalgamate several debts into an single debt, with a lowered monthly payments and rates of interest. However, whether debt consolidation affects the credit report depends upon certain factor. Negotiating with the creditors is one of them. If you bargain with your creditors in order to reduce the actual amount, it will add adverse effects to your credit score. However, this is a rare case and debt consolidation is always bear a positive effect on the credit report.

As per the rules of the Fair Isaac Corporation (FICO), the process of debt consolidation do not affect the credit score. This is because, the process enables you to condense all existing debts into one single debt instead of including or excluding any dues. 

Debt Consolidation can repair credit score

When you put effort to lower the interest rate of your overwhelming debts, it removes your debts rapidly. Consolidating debts helps in balancing your debt and credit ratio which further promotes your credit score.

However, if the debt consolidation program involves some debt management plans, this might prevent you from availing loans from the lenders. This is because the lenders might consider you as inefficient in your financial life which might get reflected in you credit report. Furthermore, you must also note that if you gather all your debts into a single account and all of a sudden close the account before paying off your the debts, this might also hamper your credit score.

If you enroll with a debt consolidation company to eradicate your debts, you must always be careful that the payment to the creditors is not delayed. Sometimes the companies deliberately hold the payment in order to lower the rate of interest by negotiating well. You just need to take care that the payment is not delayed for a long time.