You can repair credit score as long as you implement the right financial habits during a debt consolidation program. Your debt payments will have a lot of influence on your credit score. It is your job to ensure that this influence will be a positive one.
You have to understand that debt consolidation will have an effect on your credit history. If you get a loan to consolidate your debts, that will increase your balance for a moment. The effect on the credit utilization rate can affect your credit score temporarily. Not only that, the loan application might reflect as a hard inquiry on your credit report. This can also have an effect on your credit score.
If your debt consolidation program has a negative effect on your report, that is okay. You can repair credit score as long as you know how to follow through with your debt consolidation payments.
How to repair credit score while consolidating debt
When it comes to credit scores, Americans are getting better at it. According to reports, the average credit score of Americans is steadily growing. For the first time, it is averaging more than 700. And it seems like might go higher after a few changes take effect in the credit reporting industry. Apparently, there will be new criteria wherein the way you manage your checking and savings accounts will influence your credit score. This means if you have to repair credit score, you have to make sure that you implement the right financial habits.
And if you think that you have to wait until you are debt free before you can start repairing your credit score, you are mistaken. If you follow through and stick to the rules of your debt relief program, you can improve your score at the same time.
Here are a couple of things that you can do to repair credit score while in the midst of paying off your debts.
Positive payment behavior
How you pay your debts will have a huge effect on your credit score. If you miss a couple of payments, that can have a significant effect on your score. This is why it is important for you to pay your bills on time. In case you missed a couple of payments, make yourself current and keep it that way. If your finances are unstable and you know that it will be hard for you to pay off your debts, get in touch with your lender or creditor (for a balance transfer). Tell them of what you are going through so you can revise your repayment plan. If they know that you will be paying less, they will not report it to the credit bureaus. This will keep it from being reflected on your credit score.
Lower debt balance
If you are in the midst of a debt consolidation program, every payment will make your debt balance go down. You need to make sure that you can meet every payment from hereon. This will make your progress steady and will be good for your quest to repair credit score. After a couple of payments, you will find your score going up. Just make sure you do not close the old cards that you consolidated. This will affect your credit utilization rate. Keep them open until after you have paid off your debts completely.
Keep old credit accounts open
As mentioned, you should keep credit accounts open even if they already have zero balance because you just consolidated your debts. This is even more applicable if the accounts are old. Keep all of them open because these will help improve your credit score. But if you want to limit your credit accounts, then wait until you have paid off a significant amount of your debts before you close them one by one.
It is important to remember that your financial management skills will not just make debt consolidation a huge success. It can also help repair credit score.
Important reminders when repairing credit score
As you work on your debts and credit score, there are a couple of things that you need to remember to ensure financial success.
This is not an overnight fix
When you are trying to repair credit scores, do not think that this is a quick fix. There is no way to improve credit score overnight. You have to be patient with this. You need to work at it slowly but steadily. As long as you can consistent, you will notice positive results. According to reports, the credit score per age noticeably rises as we get older. Apparently, we get smarter with our credit as we get older. We experience both right and wrong. We make mistakes and we learn to never commit them again. This process takes time – especially when it involves developing the right habits. This is probably why the credit score rises over time.
You can do this yourself
As you continue to repair credit score, you need to know that you have the ability to do it all on your own. You have the ability to get back up on your feet all on your own. However, there are times when you need the help of experts to guide you along the way. Starting everything on your own can be daunting and this is where professionals can make a whole lot of difference.
However, this does not mean that you should rely on them every single time. The fact that you got yourself into that situation means you have the power to climb out of it. You can research steps and even tips on how to get your credit scores up even while you are going through a debt consolidation program.
Identify the root cause of your credit score problem
As you take on financial changes to help you repair credit score, you need to look deeper into the problem. The last thing you want to do is apply a band-aid solution to deeply-rooted problems. One thing you can do is carefully assess and look inside yourself to help you identify why you needed to consolidate your debts.
To do this, you have to ask the right questions. Take credit card purchases for example where you might have been spending more than what you can afford to pay. The problem is not overspending because that could only be a result of the root cause of your financial woes. You might be spending too much because you did not have a lot when you were a kid. It may also be trying to keep up with your friends. Once you identify the root cause of your problem, it will be a lot easier to work out a solution.