Are you falling behind on your outstanding debts? If you’re looking for a way to get back on top of your finances, you may find yourself considering debt consolidation. There are obvious advantages to consolidating your debts, but what effect will a debt consolidation loan have on your credit score? The answer may surprise you! Continue reading to learn how consolidating your debts can benefit your credit report.
What is debt consolidation?
Debt consolidation is the act of taking out a personal loan to pay off numerous outstanding debts. These outstanding debts could range from overdue bills to unpaid credit card debt to emergency expenses. By taking out a single loan to eliminate multiple debts, you can regain control of your finances by lowering the overall interest on your combined debts, thus limiting your expenses to a single, fixed monthly payment. Debt consolidation can reduce stress and improve quality of life by streamlining your finances and alleviating your debt.
Myth: Credit agencies consider debt consolidation proof that you’re struggling
Many people shy away from the possibility of a debt consolidation loan because they fear that by applying for one, they are communicating to credit reporting agencies that they are struggling with their payments. However, this is untrue. Consolidating outstanding debts does not damage your credit score. Failing to pay your outstanding debts is what reflects poorly in your credit report. In fact, not only are debt consolidation loans not damaging to your credit score, they can actually boost it! Here’s how.
Benefit 1: Reducing your debts
Each of your outstanding debts are reported individually to the three credit reporting agencies that manage New Zealand credit scores: Centrix, Equifax, and Illion. That means that with every debt you fail to pay, a separate report is sent to those who calculate your credit report. What gets reported? Late payments, defaults (payments that are more than 30 days past due), bankruptcies, and contact with collection agencies are all reported to credit agencies. If you take out a debt consolidation loan to bring yourself current with all your accounts, you can aid your credit score simply by stopping the flow of negative information into your report.
Benefit 2: Making your loan payments
Debt consolidation offers more than just a way to stop negative credit information. It also gives you the opportunity to generate positive credit information! Debt consolidation loans put you back on schedule with a single monthly payment with a fixed interest rate. Not only are you reducing the risk of default in your other credit accounts, you are positioning yourself to make manageable payments that will give your credit score a boost and offset some of the damage done if your previous debts had become overdue. Remember that taking out a debt consolidation loan is only half the battle. You still need to pay down your loan on time or risk doing further damage to your credit report, but by placing all your eggs in one basket you’ve made this task considerably easier for yourself.
Choose the right debt consolidation loan for you
Don’t just settle for any debt consolidation loan. Whether you need a personal loan for credit card payments, late bills, or emergency expenses, you can count on Nectar for competitive rates and accommodating terms. Get started today to regain control of your financial future.
*Nectar’s lending criteria and responsible lending checks apply.