A common situation that millions of people are wrestling with is should they consider a debt consolidation loan. In many cases they often think that when they are performing debt consolidation there will be no affect what so ever on their credit score. The fact of the matter is that when you are consolidating your debt down you more than likely have maxed out your credit cards and you are probably having trouble paying off your existing credit card debt. Meaning that when the debt consolidation loan is reported to the credit agencies there will more than likely be a negative impact to your credit score followed by an improvement once you have been shown to be making the payments consistently.
From your creditors point of view it is in their best interests to have you pay back the amount that you owe them. When you are having trouble paying back the money because of the high interest payments and late fees can create many added problems for lenders who are writing off bad loans at near record levels. By agreeing to consolidate your debt down to one low monthly payment the lender is able to make sure that you can pay off the amount that you owe them. This means that your credit score will reflected negatively when you first take out the debt consolidation loan because you are working out an agreement to consolidate your debt down and eliminate the high interest rates. After showing that you are making the payments on the consolidated loan consistently over time will reduce the amount of outstanding debt that you owe and the consistency of making your payments on time will be reflected in a higher credit score that you will receive.
Clearly debt consolidation does have both negative and positive effects on your credit rating. Initially after completing the debt consolidation loan you will see a negative effect in your credit score, however as you are making your payments consistently this will pay off the balance owed helping to improve your overall credit rating.