Do Debt Consolidation Loans Affect The Credit Rating?

Debt consolidation is one of the most widely used methods of financial rescue, but also the one that has probably the most myths surrounding it. Many people talk about debt consolidation and offer differing opinions about it. One of these myths is that debt consolidation hurts your credit rating. In fact, that could not be further from the truth. It is far more likely that getting a loan, if you don't want it to hurt your credit score, will help your credit score.

There are a number of ways that a consolidation loan can help your credit score. The first of these is the simple fact that you are doing something to try to be able to pay off your creditors. Your credit score is a number that basically condenses how likely a creditor is to get back their money, as a way for them to calculate the risk inherent in lending to you. Your credit score may not explicitly reflect that you are trying to pay off your creditors, but that will show up as a positive on a comprehensive credit report that many creditors ask for, when deciding if they will give you a loan.

There are also a number of miscellaneous things that are affected by getting such a loan. For example, you are closing a number of lines of credit, which alone will help your credit score, as each open line of credit "pings" your credit score for a little bit. Credit counseling can help too, which many consolidation companies offer. The only thing involved in consolidation that could possibly hurt your credit is if your consolidation company offers a debt settlement service, which you can probably refuse if you don't want to hurt your credit score. You should note, however, that settlement will reduce your debt and, therefore, your debt to income ratio, so it too could possibly help your credit score. But if you wish to be safe, it is possible to ensure that your credit score will not fall at all from a consolidation loan.