I have serious debt and need a solution for consolidating my bills. Should I worry about my credit score?
Thank you for your question about bill consolidation and credit scores. First of all, it is a good sign that you are looking for a solution to your debt problems. The good news is that no matter how serious the problem, there are bill consolidation solutions.
You are correct to be concerned about the relationship between debt consolidation and credit scores. Credit scores affect the type of bill consolidation solution you can find, and the type of solution will affect your credit score.
Before looking for a bill consolidation solution look over your credit report. Make sure that the information is accurate. If you find any negative tradelines that are inaccurate, then make sure to file a dispute with the Credit Reporting Agency.
The other side of the coin is that your credit will be affected by any debt consolidation program. The good news is that if you work on getting rid of your debt and take on good financial habits, then your credit score will increase. One pitfall to avoid is running up new credit card debt, which will hurt your credit.
Here are some general guidelines on how the various bill consolidation programs affect your credit:
Debt is stressful. You mentioned in your question that you have serious debt. Fortunately, you now know that there are debt consolidation programs for all types of credit.
In order to help you find the solution that best fits your credit and personal financial solution, Bills.com created the Debt Navigator, which only uses a soft pull on your credit and does not negatively affect your credit score. With only a few personal questions the Debt Navigator searches for the solutions that best fit your financial abilities and goals.
There are various bill consolidation solutions including a personal debt consolidation loan, cash-out refinance or home equity mortgage, debt management program, debt settlement, and bankruptcy.
In general, you can measure the seriousness of your debt situation by the amount of money you owe and the level of financial stress or hardship that you are suffering. Your credit score is a mirror of your financial situation, although there may be a lag between how you feel and your current credit score.
Credit scores are negatively affected by late payments, high utilization rates, and too much debt. If you are in a hardship, then most likely you are not making payments on time, and your credit score is dropping or already tanked. If, on the other hand, you have a lot of debt, but you can make your payments on time, then your credit score may still be good to excellent. The figure below shows the types of bill consolidation solutions that are available based on your level of hardship, which is generally related to your credit score, i.e., a higher level of hardship translates into a lower credit score.
Here are a few tips for seeking a bill consolidation solution based on your credit score and credit history: