How does consolidating debt help your credit score?
September 16, 2021at7:00 AM
Debt can feel inescapable, and the stress of unmanageable debt can wreak havoc on your life. However, some solutions enable you to emancipate yourself from these circumstances. One such solution is debt consolidation. Luckily, at DebtHelp, we’re the leading, client-friendly debt settlement company in Columbus, OH. Since 2006, we’ve provided premier services that help clients regain control of their lives and build stronger, more secure financial futures.
How does consolidating debt help your credit score? Allow us to explain:
It lowers your credit utilization.
Debt is often rooted in revolving credit, like a credit card. This is a major benefit when answering, ‘How does consolidating debt help your credit score?’
Debt consolidation changes revolving credit into installment credit. Many credit scoring systems weigh and treat revolving credit and installment credit differently. Revolving credit often has a greater impact on your credit score.
Its larger impact can be attributed to general credit utilization, which is the percentage of total credit available you’re using monthly. Turning revolving credit into installment credit significantly reduces credit utilization and improves your credit score.
Ultimately, credit utilization accounts for 30% of your credit score. Rolling revolving credit debt into a debt consolidation loan enables you to make payments and keep balances on accounts low. Ultimately, this reduces credit utilization and boosts your score.
However, everyone’s circumstances are different. Luckily, at DebtHelp, we tailor solutions to your financial situation and lower your credit utilization.
It diversifies your credit.
Credit diversification is another benefit if you’re asking, ‘How does consolidating debt help your credit score?’
Everyone has a credit mix. A credit mix is one of several variables that impacts your credit score. This score reflects your ability to juggle different kinds of credit. Generally, this refers to revolving credit and installment credit.
Taking out a debt consolidation loan results in adding a new type of loan to your credit mix. Typically, credit scoring systems like seeing you can handle both revolving credit and installment credit.
By diversifying the types of debt you have, you could improve your credit score. However, understanding precisely how diversifying credit will affect your credit score requires considerable expertise and knowledge of current trends.
Luckily, at DebtHelp, we can assess your situation and provide an honest evaluation of precisely how to diversify your credit and how it can help you.
It improves your payment history.
Lastly, it’s essential to understand what happens to your debt when considering how consolidating debt helps your credit score.
Consolidating debt turns revolving credit into installment credit. This means you’re paying off a loan with a fixed monthly payment plan and set repayment terms. Not only will this dissuade you from adding to your debt, but making timely payments is vital.
Your payment history is the most critical factor when calculating your credit score. Payment history accounts for 35% of your credit score. If your payment history is bad, over time, there will be a significant improvement to your credit score as you make timely payments.
Moreover, by consolidating several payments into a single payment, you simplify your finances. This simplification ensures you make all your payments on time.
Get in touch now to speak with a live rep!
If you feel like your debt is unmanageable, a debt management company is crucial. At DebtHelp, we’re the leading, client-friendly debt settlement company, and we’re the premier resource when asking, ‘How does consolidating debt help your credit score?’ Since 2006, we’ve helped clients build stronger financial futures. Get in touch now to speak with a live rep! We proudly help people throughout Columbus reclaim control of their lives.