Your credit score determines whether your application for a home or personal loan gets approved by the bank. What’s a credit score? Also known as credit history, it is an aggregate result gotten from the investigation of all your credit files. In fact, it isn’t just banks that require credit scores; phone companies, insurance firms and government corporations also call for credit history. By analysing your credit score, they can evaluate your financial status.
Credit Score: The Importance
Credit scores come into play when you want to apply for a loan. Banks need assurance that you can adequately pay back the loan. So because they, the banks, may not have any tangible means of evaluating your ‘loan payoff’ ability, they resort to your credit score for guarantee of your financial strength. By doing this, they do a thorough investigation of your earnings, assets, mortgages, if any; and a lot of other factors to determine if you qualify for a loan. The information banks derive from your credit ratings paints a clear picture of what your financial status looks like. And if your credit score turns out bad, it is possible that your application for a loan would be disapproved. Once that happens, other moneylenders will also be discouraged from lending you money. Who can argue with the bank’s evaluation?
What Causes Bad Credit Score?
A bad credit history may occur due to many reasons like:
• Infrequent Mortgage Payment: Not paying your mortgage at the due dates of payment may cause a bad credit score. And missing your payments altogether will most certainly lead to a very, very bad credit score.
• Not paying bills
• Low income and poor financial status
• Overspending, especially with credit cards
While these may be general factors that cause bad credit scores, different countries sometimes have their own unique methods of evaluating credit worthiness. Banks are known to have the strictest methods when it comes to accessing credit worthiness of loan applicants. If your credit score is slightly bad, banks will instantly deny your request for a loan. Banks do this in adherence to strict bank policies that seek to guard them from bad debts.If your credit score does not meet the set standards for a loan and you wish to improve your credit ratings fast, you should talk to a debt consolidation firm.
How Debt Consolidation Improves Credit Ratings
The idea behind debt consolidation is simple. It involves obtaining a loan big enough to settle some or all of your unpaid debt. You get the loan, pay off your debt, and then repay the loan in one single monthly payment. This option is offered only by debt consolidation firms. However, the option only appeals to people who prefer to make a single payment monthly rather than several payments. But in the end, it is a great way to pay off your debt and improve your credit ratings. Asides debt consolidation, another way you can improve your credit rating is by taking a home equity loan
How A Home Loan Improves Credit Score
A bad credit score doesn’t disqualify you from getting a home loan. It doesn’t matter if banks reject your loan application, a debt consolidation firms can help you out. If you’ve seen a house that catches your eye, and you can’t get a loan to close the deal because of your bad credit score, a debt consolidation firm can offer you a loan, but under set terms and conditions. While you may pay a higher interest than those with good credit rating, you may enjoy a boost in your credit score as you make your payments regularly. An added advantage in taking home loans comes by using an asset as collateral to secure your loan. However, if you don’t own an asset, you can still qualify for unsecured loans, despite your bad credit. The main focus should be repaying that loan and bettering your credit score.
Should You Consolidate?
The whole point of consolidating is to help you avoid acquiring new debt. It would make no sense if you took a loan from a consolidation firm to settle your credit card debts only for you to charge them back up. You’re practically still revolving in a cycle of debt. Consolidation helps you quit the habit of racking up debts which in turn improves your credit score. If you’re confident that you can avoid debt after taking a loan from a debt consolidation firm, then you should definitely consolidate.