Another common mistake that can take a toll on your credit score is if you pay off on your consolidation loan.
If you close the credit cards you pay off, you reduce your available credit, which could increase your credit utilization ratio (a.k.a.
On the flip side, debt consolidation can majorly help your credit score.
You may be able to get a consolidation loan with an interest rate lower than what you’re paying across all your separate debts, which means more of your monthly payment will go toward your principal balance.
If your total debt payments equal more than 45 percent of your total income, lenders may be hesitant to give you a HEL.
That said, home equity loans can be a fantastic consolidation tool.
It may be to the benefit of your credit score to leave open your credit card accounts, particularly the oldest ones.
Another way your credit could suffer from debt consolidation is if you work with an agency to implement a debt management plan (DMP).Locking down the best rate typically means that your mortgage debt doesn’t exceed 85 percent of your home’s value.Your debt-to-income ratio (DTI) also comes into play.This way, getting a variety of quotes won’t show up on your credit report and indirectly impact your credit score.You can find and compare loan offers on Lending Tree — we use a soft credit pull to search for loans that may suit you.(Again, the whole point is to transfer high-interest balances to a lower-interest loan.) On a similar note, folks with spotty credit should look long and hard at the terms they’re offered; interest rates can exceed 35 percent for applicants with bad credit.