Here are the ways to improve your credit score

Finding solutions together

Using Consolidation to
Improve your credit score

Does Consolidating Debt Help Your Credit Score?

Yes, generally. Debt consolidation loans, when properly followed through on, make credit reporting agencies happy. Failing to make payments on your debt consolidation loan will make them unhappy, and then the lower credit score will make you unhappy. How so?

What Is a Credit Score About Anyway?

It's more than about how reliable you are in paying your debts. In a sense, it is a "trustworthiness" measurement. Lenders use credit scores to determine whether to lend you money, and at what rates. They want to know that you are a responsible person with the ability to meet your obligations. If you missed payments in the past, declared bankruptcy or defaulted on loans, no sane person would want to lend you money in the future. You would need to convince them that you are now someone they can rely on.

Enter debt consolidation.

What Happens When You Consolidate Debt?

One factor in your credit score is the amount of credit you have compared to how much of it you have utilized. So if you have $30k credit available, but you've used $28k of it, that will lower your score. It shows you are near your limit and a bigger risk.

So when you consolidate and close down some of your credit cards, your available credit ratio goes down.

But on the positive side, good things happen which the credit reporting agencies notice. First of all, as soon as you get the loan, you will pay off all of the credit cards you owe. The negative items that accrue from missed payments hurt your credit score even more.

Isn't Consolidating Debt Admitting That I Have a Problem?

Yes, but it's not just that. It's admitting that you are committed to finding a solution. It shows you are responsible, then you intend to pay back all of your debts. Lenders like a person who intends to pay back all of his or her debts!

So a debt consolidation loan is a good thing.. as long as you make your consolidation payments. In many cases, those payments are automatically deducted from your bank account, so all you need to do is make sure you have enough balance to cover them.

Do I Close the Credit Card Accounts?

It's probably best to only keep one or two accounts open. Closing accounts, as we said above, can put a slight negative on your credit report. That being said, the positive element of paying off all of the credit cards with a consolidation loan far outweighs the slight negative of closing down credit cards.

Generally, a good practice is to have two active cards. One, for necessities including food, clothing and shelter. The second is for optional things such as trips, entertainment and the like. This helps you keep your accounting clear and encourages you to save money.