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Will Applying for Debt Consolidation Damage Your Credit Rating?

January 30th, 2010

debt-consolidation-credit-card.jpgThere are people all across the world who are looking for ways to get out of the debt that they have gotten themselves into. More often than not, these people make the worst mistake of hesitating to opt for a method. They do not seem to know exactly what to do, and so they will often procrastinate when it comes time to deal with the outstanding balances on their credit cards and loan debts.

The reason for this behavior is that people tend to be unsure of what is going to happen to their credit rating. Usually, people fear that by signing up with an agency they would run into the danger of ruining their credit. Needless to say (or perhaps we do need to say it, considering the large number of debt-ridden consumers out there) that these people are terribly wrong. If you opt for a debt consolidation loan, it will not have any negative effects your credit.

Let us have a look at the details. The two basic categories of debt consolidation loans are secured and unsecured. You can apply for these loans in the same manner that you can apply for other categories of loans. It has been verified that these loans do not impact your credit rating at all. It is quite possible that your current credit rating may affect the loan’s interest rate but then the credit will not go down because of the agency checks that are carried out.

When you apply for a secured loan, the chances of your loan being rejected are relatively small. This is because you would be putting collateral along with it. This helps you to get a loan with lower interest rates and in fact, due to this, the chances of you getting this loan also increase. However, when you apply for an unsecured loan, the case is totally different. Since there is no collateral, the lending organization will usually make a decision on whether or not your loan will be sanctioned based on your credit rating. In case you have a really bad credit rating, then they may just cancel your loan application but then they can do nothing to your credit score.

The factors that actually affect your credit rating are something that is totally different. For example, if you are granted a debt consolidation loan and you miss your payments, then it is marked on your credit report and thereby affects your credit rating. This is the way people generally get into default and wind up spoiling their credit rating. But at the end of the day, what you need to keep in mind is that there is nothing wrong with applying for a loan. You should be sure of the fact that you can afford the loan and will be able to make timely payments.

As long as you make your payments regularly, this can ensure that your credit rating remains intact and may eventually improve. If you do not make payments on time, then there will be a negative impact on your credit rating. At times, if you are able to keep pace with your monthly payment, then there are chances that your credit ratings will increase and become better. However, you must keep one thing in mind. Once you have attained freedom from these financial liabilities, you should take care that you do not end up in such a debt-ridden situation ever again. A proper plan and some good budgeting can help you maintain a healthy financial situation.

Related article: Credit Card Debt Consolidation Options


This article on the effects of debt consolidation was obtained under a private label rights license from the DigitalPoint forums.


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