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How is Credit Evaluated?

Your credit is classified as excellent, good, average, fair or poor dependent upon a score given to you by three major credit bureaus. These bureaus receive information about your debt and your payments each month. If you maintain payments and keep your debt relatively reasonable, you can expect to have a good score. If you have lots of debt and have been late making payments, however, your score will drop.

How Can Debt Consolidation Help?

If you consider debt consolidation, you are basically looking at taking out one big loan in order to pay off all of your other debt, and, hopefully, secure a lower total payment than your earlier debt required. This technique can be a great help to you personally and help your credit rating, if you can commit to the following:

Tear up the credit cards you are paying off. Do not get new ones. This is what got you into trouble in the first place. If you are paying off personal and auto loans, you will not get new ones until the debt consolidation loan is paid off.
When all of your credit cards and other personal debt are paid off, your credit report will reflect that they have all been paid “as agreed.” This “as agreed” is important because it signals others that you were not late (delinquent) on any payment. Your credit score will pop up. The new loan, however, will bring it down some, so be careful.

You will want to refrain from taking out any new credit until your bill consolidation loan is paid off. This is because, each milestone you meet in reducing the consolidation loan debt, will be reflected in an increase in your credit score. Once the reach the halfway point, that is, your debt falls below one-half of the original loan amount, your credit score will usually bump a minimum of 40 points. This can be significant, because if it gets you over 620 you can qualify for lower interest loans on most anything you buy on time in the future.

Credit scores can go as high as 850, and only those with impeccable history of paying off debt and accumulating only moderate amounts of debt achieve this kind of score. You certainly can get within the 700 range if you promise yourself you are never going to get in a position of having to make minimum payments on multiple credit cards and/or personal loans.