4 ways the credit score will get hurt in debt consolidation loans.

There might be a situation where all your bills and debts are piling up and you don’t know what to do?

The solution is to take a debt consolidation loan bad credit, this combines all the debts and liabilities into one and then clears off all of them at once. It is very useful for the ones who are having a bad credit score. But the borrower must be careful before taking this loan, as this will have lasting effects on the credit score if it is not used in a proper way.

The top ways that will hurt the credit score when this loan is availed are

1. Hard inquiries affecting credit score: Multiple hard inquiries will affect the credit score. If there is an inquiry on your credit score multiple times in a short period of time, then that would be a sign of risk, giving it a red flag to the future lenders. The lenders check the credit score before approving the loan, if they find that there are multiple credit inquiries in a short period of time, then there are fewer chances of getting the loan approved. This will not let you take the loan any time sooner.

When talking on an advantage side, if the borrower is consolidating a debt, then he might not be opening a new credit line anytime sooner. So, a temporary downfall in the credit scores may not matter much, as this can be improved by timely payment and it will affect the record only for a year.

1. New accounts will lower average credit age: If the borrower takes a new credit loan, then that will lower the average age of his credit accounts. This will also affect the credit score. A new loan will generally not have a positive credit history, so the borrower must make on-time payments to improve the score. Only then the score will improve and will make it easy to avail the loan.
2. Building up more debt: The borrower does this mistake of getting into new debts before even paying the old balance. If the borrower surrenders to the spending of newly paid-off credit, then any improvement in credit score will soon disappear.

After the borrower consolidates his debt into a new account to pay off alternative cards, his overall quantity of accessible credit will increase, lowering his credit utilization quantitative relation. The lower that quantitative relation is, the higher the FICO credit score is. But, if the borrower doesn’t leave those credit limits alone on his older cards, then he will get into trouble

4. Defaulting payment: It is very important for the borrower to make the payments on time each month until the whole loan amount is cleared. The payment structure affects a lot and influences a lot on the credit score. If the borrower defaults a payment, then the lender will send the report to the collection agency, where the report stays for around seven years on the record. This will take a hit every time the borrower tries to take a loan from the lenders.

For more information visit: https://www.fleetquid.co.uk/loans/debt-consolidation-loans