- Your credit affects the type of credit card consolidation program you should choose.
- Debt consolidation loans are one option for good to excellent credit.
- Some programs help, others hurt your credit. You can always rebuild your credit.
Does Credit Card Consolidation hurt my credit?
I want to pay off my debt, but am not sure if this will hurt my credit. Also, do I need a good credit score to consolidate my credit card debt?
Thank you for your question about credit scores and consolidating credit card debt. The short answer is that in most instances, credit card consolidation helps your credit.
While it is important to worry about your credit, your first concern should be paying off your credit card debt with affordable monthly payments. The single most important factor affecting your credit score is timely payments. Consolidate credit card debt into affordable payments. If you can’t afford your monthly minimum payments, then look for a hardship debt consolidation program.
It is important to remember that if you pay off your credit cards, you don’t have to cancel them. Closing the card will eventually lower your credit score because that information will be eventually be deleted from your credit report.
Looking for a Personal Debt Consolidation Loan?
Bills.com makes it easy to shop for a debt consolidation personal loan. Start by filling in your credit score, zip code, loan purpose, and the amount of loan you need. Check out different offers and click on the appropriate ones.
Factors Affecting Your Credit Score
It is essential to understand how a credit score works. There are a few different credit score models. The most popular ones are FICO and Vantage. Also, your credit score varies depending on the type of debt. There are different scores for mortgages, credit cards, and auto loans.
According to Experian, one of the three top Credit Reporting Agencies, the top factors in a FICO score are:
- "Most influential: Payment history on loans and credit cards
- Highly influential: Total debt and amounts owed
- Moderately influential: Length of credit history
- Less influential: New credit and credit mix (the types of accounts you have)
Your Credit Score Affects Your Credit Card Consolidation Options
The type of debt consolidation that you can choose from is affected by your current financial situation and credit. Are you making your payments on time? Are you suffering from financial hardship?
When considering your credit score and credit card consolidation, it is critical to take into account your initial credit score and the type of debt consolidation program that is available.
If you have excellent credit, then you will most likely be eligible for a low-interest personal loan or a low-rate cash-out or home equity mortgage. Here are the two reasons that your credit score will improve:
- Lower Utilization Level: Paying off your credit card debt with a new loan will lower your utilization level.
- Larger Credit Mix: The new loan adds to your credit mix.
While there are bad credit debt consolidation loans, those usually come at a very high price. You should be especially careful of short-term (payday) solutions. Those are quite often a debt trap.
If your credit score is low, or you are in financial hardship and not making your payments on time, then you need to look for a credit card consolidation program that allows you to make lower monthly payments. If you are looking for a debt settlement program or bankruptcy to consolidate your credit, then your credit score is going to be further damaged. Here are the main reasons:
- Late or non-Payments: Since you stop making payments to your creditor, these will be negative marks on your credit report and will damage your credit score.
- Collection or Public Records: Bankruptcy is recorded on your credit report as a public record. If the creditor sues you and wins a judgment, then a public record will be created. It is essential to keep in mind that while these programs hurt your credit in the short-medium term, in the long run, they help you get out of debt and allow you to rebuild your credit.
Matching Your Credit with a Credit Card Debt Consolidation Program
Your credit is a vital consideration in choosing a credit card debt consolidation program. Remember, even if you have bad credit, once you start a debt consolidation program you can improve your credit score.
Bills.com created an innovative tool, the Debt Navigator that helps you match your personal situation with programs that help you manage your debt. Answer a few questions about your financial situation (debt, income, homeownership, goals, level of hardship), authorize a soft pull on your credit, with no impact on your credit score, provide personal contact information, and then click on the button. You will get a picture of your debt on one page as well as up to five different debt consolidation solutions. Pick the solution or solutions that seem best to you and get more information from Bills.com debt providers.
I hope this information helps you Find. Learn & Save.
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Collection and delinquency rates vary by state. For example, in South Dakota, 18% have student loan debt. Of those holding student loan debt, 5% are in default. Auto/retail loan delinquency rate is 2%.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.