Can a Debt Consolidation Loan Affect My Credit Score?

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Are you struggling with unsecured debt that has accumulated in different areas over the years? If your debt resides in more than one place and you are finding it difficult to manage each one, we have a solution for you known as a debt consolidation loan.

About Debt Consolidation Loans

To stop your debt from growing in more than one area, a debt consolidation loan allows borrowers to combine other debts they have accumulated over time. If you decide to take out a loan for debt consolidation, you can figure out how much you need by summing up how much you need to pay off all your debts.

The common types of debt we see people consolidate include balances on high-interest credit cards, past-due utility, and medical bills. This strategy can lower the total interest you owe on the debt and help you pay it off faster. When it comes to convenience, wouldn’t you rather have one loan to pay off rather than multiple loans?

How will it Affect My Credit Score?

If you decide a debt consolidation loan is the right path to your financial freedom, keep in mind that it can temporarily hurt your credit score. During the application process, your credit is checked, which can lower your credit score for a short duration. Consolidating multiple accounts into one loan can also lower your credit utilization ratio, which could negatively impact your score.

Having a good credit score can be important as your credit status can impact many areas of your life. However, if you do decide to consolidate your debt into one manageable payment, it can improve your credit score long-term. By making on-time payments and ultimately paying off your debt, it could help improve your credit score over time.

A Solution that Can Simplify Your Debt

The importance of comparing financial intuitions’ interest rates should not be overlooked, especially when a loan is involved. By borrowing money from a financial institution with low-interest rates, you can reduce the amount of interest you are paying, ultimately reducing how much you will have to pay to resolve your outstanding debt.

At Camino Federal Credit Union, we’re able to offer our members flexible terms and competitive interest rates. We invite you to explore the plethora of benefits you are eligible for by becoming a member. Give us a call at 800-835-3400 to speak with one of our Member Advisors, or visit us online at caminofcu.org for more information.