Loan consolidation can be a great solution for accumulating debts. But while it can save you time and money, will loan consolidation hurt your credit?
Read on to find out how entering into a loan consolidation arrangement may impact your credit.
Loan consolidation combines several outstanding debts into one, with the goal of paying a lower interest rate, a smaller monthly repayment amount, or both. There are a few loan consolidation options, including a balance transfer credit card, unsecured personal loan or mortgage refinancing.
Your credit score is a snapshot of your financial life. Calculated by one of Australia’s credit reporting bureaus, your credit score is a reflection of your current credit information, balances, payment defaults, bankruptcies and financial inquiries. The higher your credit score, the better.
Any time you apply for credit, the lender will contact the credit reporting bureaus for your credit score. They use your score as one of their deciding factors when deciding whether to approve or decline your application.
If you have a good credit score, not only are you more likely to be approved for a loan or credit card, but you will be in a better position to negotiate a lower interest rate.
Entering into a loan consolidation arrangement can help improve your credit score under the following circumstances:
Loan consolidation may see your credit score dip if:
So loan consolidation can both help or hurt your credit, depending on how you go about it and how well you look after your finances over time.
But with good discipline, loan consolidation can help improve your credit score while you lower your debts.