Home > Blog > Finance

Build A Good Credit History To Get A Debt Consolidation Loan

If you are struggling with your multiple debts and looking for relief, taking out another loan called debt consolidation loan can prove to be the best option. It will roll all your debts into one thereby reducing the number of loans making it easier to manage a single loan now. Ideally, if you look into you will find that this is the most recommended option.

Most people in debt take this route but these people usually have a good credit. If you have already damaged your credit score due to your mismanagement of debt, it is wise that you focus on building your credit rather than wasting time and energy in applying for a debt consolidation loan and get rejected.

You may not know the significance of your credit score to a lender. All you may know that it will determine whether or not you will get the loan. However, it will also provide the creditors with additional information such as:

  • Your debts situations
  • Your ability to manage your finance and debt
  • How many times you applied for a loan and much more.

All information, positive or negative, will remain in your report for a certain period of time. As for example:

  • Credit inquiries may remain on your report for more than a year
  • Debt settlement report can stay for a period of seven years and
  • Bankruptcy report can stay for ten years.

Remember, for any doubts your loan application will be rejected and the lenders may also ask for an explanation of any recent inquiries made into your credit if you are applying for a loan.

Therefore, if you are considering applying for a loan in the future make sure that you are wise enough not only to have a good score but also continue to manage your debts and keep the number of inquiries made into your credit as low as possible.

Building A Good Credit History

If you have a damaged credit score and history make sure that you focus on rebuilding it first. In order to start building a good credit history you will need to follow a strategic process and plan.

  • Assuming that you have rectified the errors in your credit report if there was any that is, the next step is to build a good and clean credit history. Right at the onset you should know that it is never too late to start this process of taking care of your credit in the proper way.
  • If you find that your loan account mix as well as your credit utilization and payment history was not impressive and great in the past then opening new accounts will help you in a great way to improve your credit score. This is because these new accounts will give you a fresh slate, well somewhat, that will help you to rebuild your credit score in a better way and much faster.
  • Now, assume that due to your poor credit you are not being allowed to open a standard credit card account. In such a situation you can consider getting hold of a secured credit card account. These are special accounts that require the borrower to put up a specific deposit as much as the value of the credit limit on the card. This will help you to build your credit history and at the same time allow the banks with an assurance that they can recover the money due by withdrawing the funds in case you miss a payment cease to pay completely.

If your credit score is in decent shape but not as good as required by the creditors which is typically above 600, there are other alternative ways in which you can build up your credit score. Utilize any of these following methods in any way you find it easy and possible and see how it helps you to expedite the process of improving your credit score.

  • Stop making any new purchases on your credit cards. This will prevent you from acquiring more debts and make your situation worse.
  • Try to pay down all the existing balances making sure that you make payments for all your accounts, more than the bill for some and at least the minimum amount for some accounts. This will prevent you from accruing interest and other fees and charges on your outstanding balances.
  • Do not ever close any of your existing credit card accounts, not even the old ones because closing your accounts will have serious consequences on your credit score. Such an act will change the credit utilization portion of your credit score. This will in turn inhibit with your labors to build a long credit history.
  • If you have any account with the collections then you must make sure that you pay it off. This will not only save you from the harassments of collection calls but will also make a positive impact on your credit report. However, once you pay it off and have the proof in your hand you must make sure that it is removed from your credit reports. Such wrong entries will once again interfere with your efforts of rebuilding your credit history.

Make sure that you do the rate shopping within 30 to 45 days if you are considering applying for a loan. This principle applies to car loans and even for mortgage loans. The primary benefit of keeping your search within such a short window is that it will reduce the impact of the inquiries made to your credit. This is because all like inquiries will be grouped together in almost all types of credit models and therefore it will affect your credit score and history in an adverse manner.

All these little efforts and practice will ensure that you have a good credit score and an error free credit history that will increase your chances to get a debt consolidation loan. Therefore, if you have a damaged credit or a faulty credit history, you may either start building it immediately yourself or talk to a credit advisor.