Improving Bad Credit with Debt Consolidation

by Mike on August 6, 2019

Improving Bad Credit with Debt Consolidation

Understanding Bad Credit

Bad credit is not something anyone wants to have because it can make things quite difficult for you either as an individual or a business. What exactly do we mean by bad credit?

Let’s try to define it with a graphic example. We all know that there are lenders everywhere around us and a lot of us have to deal with them in one way or another. We have auto loans, mortgages, credit card companies, student loans, business loans and any other types of loan facilities we may know of.

Before a lender will approve a loan application (in any of the cases listed above and those not listed), the lender will first want to determine if this person will be able to pay back said loan. Since these lenders are not mystics and so cannot tell the future, they will rely on what is called your credit history.

Your credit history tells a story of previous loans you have received and how faithful you were in repaying them. If you were prompt in making your payments, then you will be regarded as having a good credit history which in turn translates to a good credit score (or rating for businesses) or simply good credit.

On the flip side, should it be discovered that you have several missed, late or pending repayments, then your credit history will be regarded as bad and this will translate to a bad score. This is what it means to have bad credit. You can read all about it here.

The Implications of Bad Credit

Okay, so a person has a bad credit score so what? How does this really affect such an individual or business?

Let’s quickly take a look at a few ways that this state of affairs can impact an individual or business.

Reduced Access to Loans and Lines of Credit

You will find it difficult to find lenders who will be amenable to offering you loans or lines of credit. The financial records have shown that you have not been faithful in repaying previous loans from other lenders so they would not want to be owed. This is one of the main fallouts this situation will result in.

Increased Interest Rates on Loans and Lines of Credit

Should you find a lender who has the heart to grant you a loan, you will be classified as a high risk borrower and so will be charged a higher interest rate. This may be in addition to higher fees. After all, many other lenders will not touch you with a long stick you are therefore left at their mercy.

Difficulty Accessing Cell Phone Contracts

Those cell phone contracts you could access with ease will become more difficult to get. Know why? They are also forms of loans and again, your bad credit tells them that you may not make your payments. Yeah, your woes just keep increasing.

Issues with Apartment Rentals

It gets worse still. Should you want to rent an apartment, your credit report will be required to determine if you are the kind of tenant they want in that apartment. In the event that you find an apartment that is offered you in spite of the bad credit issue, then you are likely going to have to cough up a higher than usual security deposit.

Difficulty Accessing Utility Services in Your Name

Sadly, that you’ve gotten the apartment is not end of your troubles. Utility companies will also want to check this same report to know what kind of customer you are. Well, with what they find on your record, they will not be in a hurry to offer you their service in your name without your having to put up a suitable security deposit.

Increased Insurance Premiums

This same report will also affect your insurance premium. Somehow, insurance companies regard folks with low credit scores as high risk individuals who should have to pay more in premiums.

The list above does not cover everything that can result from this condition. You can however find more here:

Debt Consolidation and How it Can Help

Given all the terrible possibilities that can arise from this state of affairs, how can this situation be reversed? There are a few ways through which you can begin to repair your bad credit record.

First, you can just wait it out. This means that you will begin to make payments on your debts on time. After a while, your positive inputs will override your previous negative ones. This may however not be an option you will want to pursue if your debts are huge.

A second option will be to dispute the report especially if you think there are errors that might have made your situation worse than it actually is. However, our focus as we conclude this article will be on the last method which is debt consolidation.

This method is for those who have nothing to dispute and cannot wait it out because they have piles of debt that has made it practically impossible for them to meet the monthly payments. For such folks, other than winning the lottery, their next best option is debt consolidation.

What is Debt Consolidation?

This simply means bringing all your debts into one single basket and then getting another loan to pay these off so you can focus on repaying just the new loan. This will therefore mean a single monthly payment rather than the multiple monthly payment you previously had to deal with. You can read all about it in this article.

There are lenders who specialize in giving out this kind of loan. Your first step in getting your debt consolidated will therefore be to find the lender that is right for you. This first step is very important as it will affect how well other steps will go. Once you have found the right lender or a couple of lenders you are considering, do the following:

  • Be sure of exactly how much your entire debt is. You need to know this.
  • Get quotes from your shortlisted lenders. You need to know exactly what they are offering.
  • Before signing, be sure you know exactly what you are going into. You must be sure that the terms are suitable and you can meet the monthly payments.

Fixing your bad credit is not impossible; it just requires focus and a good knowledge of what needs to be done. You may also need to make some tough choices and adjustments until your score gets better. It is an effort worth making.

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