Does a Debt Consolidation Loan Hurt Your Credit?

If you are like most people, you’ve probably taken on some debt over the past five years. You have been making your minimum payments and have decent credit, but you don’t see a way out. How will a Debt Consolidation Loan affect my credit? Let’s find out.

Debt Consolidation and Your Credit

We have all been told to make our payments on time. If I do this then I should have great credit…right? Well the truth is that making your payments on time every month only affects about 35% of how your score is determined. 

The simple answer is that a Debt Consolidation Loan should improve your credit and not hurt it. The reason for this is called ‘credit utilization’ and don’t let the term confuse you. All this means is the amount of your available credit that you are using at any time.

Quick example: You have a $25,000 line of credit through your bank and you have borrowed $24,500 of it for the last 12 months that have reported to your credit bureau. This is a 98% use of your available credit.

Credit utilization affects a further 30% of your credit score so this alone should cause your credit score to rise almost immediately after a Debt Consolidation Loan is completed.

Read more about all the things you need to know about Debt Consolidation Loans.

What Happens To My Credit if I Don’t Consolidate?

Often the other side of this question isn’t given nearly enough thought. A surprising amount of Ontarians are sitting in hot water with their debts but because the temperature has been rising ever so slowly they haven’t even noticed. 

Your line of credit is maxed, the credit cards are too, and we are definitely not getting a bailout from the parents this year. Like a frog in a pot with the needle slowly rising you have felt comfortable with this debt as minimum payments have been met. But at what point do we make the jump to somewhere nice and cool?

You’ve become numbed by minimum payment affordability. The remedy to this is to turn up the heat in exposing the lies the banks and payday loan places have been selling and get just uncomfortable enough to jump out of this hot water…before you get cooked! 

The truth is your credit is slowly getting worse. High utilization of your available credit will hurt your score and make your chances at a low rate Debt Consolidation Loan less likely in the future.

Many bank representatives and brokers will only tell you what you want to hear or what will get them a pay cheque. Find a Mortgage Broker that tells you the truth even if it earns them less (or nothing) in the short term. I want to earn your trust first.

Credit Improved – Debts Consolidated

Now you’ve felt the urge to jump for the first time in a while. Let’s get you out of this hot water! Landing in a pool that is nice and cool with your debts paid out and a single low monthly payment that isn’t going to hurt your credit down the road.

Contact me now while everything is still in front of you.