Positive and negative effects of consolidation on your credit report
It is very easy to acquire debt but it is equally difficult to pay it off. Debt consolidation is one debt solution that can help you get out of debt. How does debt consolidation affect your credit report, could be the next thing you would want to know. To answer this you must first know what debt consolidation aims at. The very purpose of debt consolidation is to combine all your multiple debt and get you out of debt as soon as possible. Ultimately, it tries to improve your credit and not harm it. However, the effects of debt consolidation could be both positive and negative.
Positive effects of debt consolidation
A credit score depends on how many different accounts, have outstanding balances. As debt consolidation combines all your outstanding balances into one, it improves your credit score, thus, improving your credit report. A positive effect that consolidation will have on the credit report is that many accounts will appear to be paid off. If you repay your new credit timely then that too will have a positive effect on your credit report in the longer run. When you consolidate your debt you pay a fixed monthly amount to your debt consolidation company which is then distributed among your creditors. Thus, your creditors receive payments every month, this definitely leads to improvements in the credit report.
Negative effects of debt consolidation
It is not debt consolidation that directly affects your credit report negatively but your actions after debt consolidation. Like, missing a payment could affect your credit report very badly. You must make sure that you make your monthly payments on time along with other credit payments, otherwise your credit score will drop, affecting your credit report adversely. You must also remember that closing credit accounts after debt consolidation can also impact your score negatively. So you must not close your oldest accounts.
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