The debt consolidation process with respect to your credit score is a bit of the chicken and the egg.

When you have a high utilization of credit cards and lines of credit, the credit scoring system utilized by Equifax and Trans Union will reduce your credit score to reflect what they believe to a higher level of credit risk.

If you go through a debt consolidation process whereby your credit card and lines of credit balances are paid down or paid off completely, you will likely see a significant jump up in your credit score over the next 30 to 60 days after consolidation is complete.

The challenge here is that the impact of your unsecured debt on your credit score may impact the types of mortgage refinancing programs you can entertain, ergo the chicken and the egg…. if I refinance, my score will go up, but because my score is too low right now, its going to cost me more to refinance.

But a higher credit score may have other significant benefits to you as well that need to be factored in.

As an example, say you’re a small business owner that utilizes personal credit cards to fund your business. This can be a pretty common occurrence, and in many cases, the only way the business could have started up in the first place.

But over time, as the business grows, the ability to seek business credit will indirectly be impacted by personal credit.

Put another way, almost any type of small business financing takes into consideration both the business credit profile and the personal credit profile. If the personal credit card debt is pulling down the personal credit score, a business owner could be declined for a business loan that has minimum personal credit score requirements.

A personal debt consolidation that removes the balances owing on the short term unsecured debt will allow the credit score to jump up and now potentially allow the business owner to get the additional financing the business is seeking.

The point here is that a good credit score can benefit you in many ways, most of which will result in greater access to capital and lower cost of borrowing. So even if you’ve never missed a payment on anything and have excellent cash management skills for juggling a number of unsecured debt balances, make sure that the overall impact on your credit score will not hamper your ability to secure capital in the future or even to make debt consolidation less beneficial over time.

If you are considering debt consolidation, I would recommend you give me a call so I can quickly assess your options and answer any questions you may have.

Click Here To Speak With Mortgage Broker Joe Walsh.

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