Does consolidating debt affect your credit

These are not quick fixes, but rather long-term financial strategies to help you get out of debt.When done correctly, debt consolidation can: There are several ways to consolidate debt, depending on how much you owe.Your FICO Score is made up of five factors: payment history, amount owed, age of credit history, types of credit used and inquiries (applications for new credit).35 percent of your score is determined by payment history: whether you pay on time and whether you have had bankruptcies or judgments against you. 15 percent is determined by the age of your credit history.Consolidating debt can help you pay off debt faster, lower the amount you must pay back or lower your monthly payments by stretching out the amount of time it takes to pay your debt.However, consolidating debt can hurt your credit score.This results in you paying less money to your creditors in the long run,and, in a quicker amount of time. You should deal only with certified professional credit counselors.

You also could look at a personal loan to pay off your balances.Some may take it as a positive thing showing that you are taking responsibility for your financial situation. This notation is removed once you finish or terminate the debt consolidation program.Debt consolidation is a good idea especially since a good agency may be able to get your interest rates reduced, waive or reduce late fees, financial charges, etc.Other creditors might view participation in a debt-management plan as a positive step, a sign that a consumer has taken responsibility for and is serious about paying off debt. Paying off a big chunk of debt on your own or with the help of a debt-management plan will give your credit score a boost. "The late pays hurt, not the comment that they're paying it through a counseling program," Sweet says.The more a creditor bases a lending decision on a consumer's credit score, the less a consumer's participation in a debt-management plan is likely to matter."A typical creditor uses the scoring model. And that's why it's so important to choose a debt-management program carefully.

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