Need to Improve Your Credit Score? A Debt Consolidation Loan Might Be Your Saviour

“Feel the urge to travel afar? Or would you rather the joys of a brand new car? Wish for a house that comes equip with a moat? Or favour a voyage on a stylish new boat? It’s things like these that our hearts desire, but with a credit score at rock bottom, our expense could be fire.”

That’s enough of us trying to play Dr Seuss. Credit scores. We have all heard about them, but we don’t know a lot about them. It’s basically what financial companies use to assess the risk in supplying you with money in the form of a personal loan. We have covered what a credit score is in a previous blog so we won’t go on to much about it, but instead will provide you with the link at the bottom of the article, so that you can read about it yourself. Your credit score affects your ability to apply for future loans greatly, so a low one could put our dreams of sailing around the world, on hold for quite a while. We know that if we can pay our bills at the end of the month, that over time, our credit score will improve, but this isn’t always possible for everyone. With debt on our hands we don’t always look appealing to creditors, and being unable to pay that debt on time each month, could make us look less appealing. This is why we need to look towards the silent saviour that constantly gives without asking for much in return, the debt consolidation loan.

OK we know that was a terrible Segway, but the words hold true. A debt consolidation loan, which is a loan that consolidates your debt into one easy manageable loan, could be the tool that could help you improve your credit score.

Pays off existing debt

A debt consolidation loan pays off the existing debt that you may have to other creditors. Having multiple creditors on your credit history looks bad during a credit check as it appears that you have acquired numerous amounts of debt from different creditors. The amount owed doesn’t appear, but the financial institutions still see something owing, so they assess the risk of supplying you with a loan as being higher. A debt consolidation loan can help fix this problem, as combining your loans into one, will improve your score. It shows that you are taking responsibility by simplifying your finance and with more manageable payments every month, you will find your credit score improves.

Utilisation ratio increases

A utilisation ratio is your credit limit vs the amount of credit in use. The more credit available, the higher the utilisation ratio, and so the higher the credit score. A debt consolidation loan helps with this as since it pays all your other forms of debt off to creditors; it leaves you back with full available credit. A loan that pays off five credit cards that equals to $20,000 would mean you could potentially have $20,000 worth of available credit. Just because it is there, however, doesn’t mean you should go and spend it. A utilisation ratio shows that you are confident with your finances and that you can be trusted with debt. Keeping this available credit limit high, helps shows financial industries that you can trust yourself with your spending and that you are not at risk of excessive consumption that could put yourself back into further debt.

Easier more manageable payments

Now another potential big benefit of a debt consolidation loan to your credit score is that fact that you will be more inclined to pay off the existing debt you have. As we know, making payments on time will help our credit score gradually rise. So wouldn’t it make sense to try guarantee that you can make your payments on a regular basis? A debt consolidation loan does this for you, as you pay less monthly, with a lower interest rate and you don’t have to worry about multiple due dates sneaking up on you all the time. Your credit score and your bank account will thank you, as with every month that goes by, a gradual increase in both will occur.

Multiple applications look bad

Now, this information may be too late for some, but it could be useful in the future to know. Applying to various creditors for loan applications means that you will have multiple credit enquiries on your account which looks bad to financial providers and lowers your credit score. Instead of fishing around for the best rate, try to find a creditor that you know or trust, and keep your lending with them. This will increase your credit score as it will mean you will have fewer enquiries on your history and you will appear to have been more serviceable in the past. It works similar to consolidating your finances. Having it all in one place and not from various sources, makes you appear to be more reliable and trustworthy.

So enquire about debt consolidation with your local credit union and find out whether it would be the right option for you. Secure your finances and your future. As making a start now, could improve your credit score over time and create opportunities that you never thought possible, an option for you.

 

For more information about credit scores, check out:

https://nzcusouth.co.nz/credit-score-your-form-guide-would-you-back-yourself/

https://nzcusouth.co.nz/products/loans/debt-consolidation/are-debt-consolidation-loans-bad-for-your-credit-check/

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