If you just signed up with a debt consolidation company, or you’re thinking about signing up for one, you’re probably worried about your credit score, and I don’t blame you. Since many people take this route to avoid situations such as bankruptcy, and more, let’s take a look at how it should affect your credit score.
How the debt consolidation process works
I don’t mean to be blunt here, but debt consolidation is for those that are lazy. Basically they do the dirty work for you. They will negotiate for you, as well as give you one bill, rather than 15 each month.
An example that you can use…
For example, let’s say that you have 10 credit card / student loan based bills, and more. Let’s say that the total of them equal out to $1,200 a month for a minimum payment.
The consolidation cop many will call up each one and try to get the bill lowered. Now, they will add a “consultation” fee on top of it and you will pay one bill, rather than 10.
How it affects your credit score
Now, as long as the company is doing their job and paying the minimums on all the bills, you’re going to find that you won’t have a problem at all. It will be as if you’re paying the bills. The more you pay, the lower your debt to income ratio becomes, therefore increasing your score, rather than lowering it.
Can it lower your score?
The only way that it is going to lower your score is if you stop paying your payments to the company, or you signed up with a company that isn’t living up to their word.
This is why you should get evidence each month on how they are paying your bills. You will want to make sure that you get proof that they are paying each and every one of them. A good company will send you a statement at the end of each month.
Overall, as long as you pay the payment to the debt consolidation company each and every month, and you’re dealing with a legit company, you should be okay with your credit score.
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