Deep down in debt, taking out a debt consolidation loan can prove to be a very good option if you want to have some respite from the ever increasing pressure of your monthly bills. However, if you have already fallen behind on your debt chances are that you will have a bad credit. In such a situation there is no need to frown and wonder whether or not you can get a Debt Consolidation loan in spite of your bad credit.
Knowing your credit score is essential when looking for a loan, and it’s important to put in effort to rebuild it if needed before applying. If you’re struggling with a bad credit score, consider seeking credit repair services to help improve your score and increase your chances of being approved for a loan.
Debt consolidation loans typically will help you in a lot of ways but the most significant benefit of it is that you will be able to recast your debt. This is because the new loan will come with its significantly useful features such as:
- It will have a lower rate of interest
- It will reduce your monthly payment amount and
- It will roll all your debts into one.
Especially helpful for multiple credit card debts, these loans can also consolidate your other debts along with it. With all your debts rolled into one loan with one monthly bill, it will be easier for you to continue to make the payments and keep a track of it as well.
Importance of credit score
However, you may be concerned, and a valid reason for such concern, if your struggle with your debt has already damaged your credit score. You may wonder whether or not you will be able to qualify to get a debt consolidation loan.
Ideally, your credit score will play a significant role when you apply for any loan and a consolidation loan is no exception to this rule. Apart from the eligibility factor, your credit score will determine a lot of factors such as:
- The terms of the loan
- The rate of interest and
- The amount of money you will be able to borrow.
Therefore, if you are seeking a consolidation loan to reduce the number of loans and the monthly amount, there are few things that you should consider.
Things to know
There are a few things that you need to know at this point. These are:
- It is very important that you understand and know the complete picture of your credit before you apply for a debt consolidation loan finding it to be a suitable option as suggested by com to consolidate your credit.
- You will find that there are number of ways in which you can get a credit report that is not only safe and secure but free as well. Review your credit report thoroughly. You may find that there are several items in it that need consideration before you begin your loan search. So you can use an id theft protection free service to make sure there is no identity theft affecting your score.
- For a damaged credit score there is no magical fix. It will take a lot of time and diligence on your part if you want to rebuild your damaged credit. However, if you know where you stand it will keep you from applying for such a loan to lenders who need higher scores and waste your time in the process.
- In addition to that, having a hint of what your credit report may show up will give you an increased confidence and help you in addressing different problems with the lender.
Therefore, if your credit score needs repair take the existing and suitable remedial steps immediately so that you can improve your credit score over time.
Know the factors
In your credit report requested you will find all the relevant details of your credit score. Taking cue from these details you will be able to find out very easily the factors that may be holding you back.
There are ideally five key factors in your credit score. These are:
- Your payment history, which is a record of your payments signifying whether or not you made your monthly payments on time
- The credit utilization, which is the used amount of the credit extended to you
- The age of your credit accounts and older the account it is better for you
- The mix of your credit accounts that may include car loans, mortgages, student loans, credit cards and others and
- The application history, which shows how many times your credit report have been pulled by the potential lenders.
All these factors make a complete credit score and report that you can avail and review to know where you stand and what needs to be done to improve it, if at all.
Significance of the factors
All these five factors have its own significance in making or breaking your credit score.
- Out of these five factors mentioned above, your payment history is the most important one. This is because it makes up about 35% of your credit score. Regrettably, this also means that your payment history will affect your credit score in a big way even if you make one late payment.
- The second most vital factor in the composition of your credit score is the credit utilization. If you have maxed out or nearing the limit of your credit, the credit bureaus will surely downgrade your credit score. This is because they consider this to be your inability to manage your finance and debt which will make you a high credit risk to a lender.
- The age of your account comes next in the list of importance that may affect your credit profile and score. Older accounts will suggest that you have been managing your debts successfully and will make you a better credit risk. That is why you should not close accounts that you are no using any longer as that will hurt your credit score actually.
Lastly, make sure you have a mix of loan accounts as most creditors are interested in borrowers having different types of credits. Also keep the number of application and inquiries for credit low otherwise it will make the creditors think that there are additional accounts they do not know about.