May Debt Consolidation Has A Negative Impact On Credit Profile?

Debt consolidation can have a negative effect on your credit profile on a temporary basis. This effect does last about two years, but it doesn't have to be forever. With the proper planning and care taken, you can definitely get your credit score where it needs to be after those two years are up.

When you consolidate debts, many lenders become concerned that you will short them on the money that they are owed. A lender makes most of his money on interest. When you consolidate your debts, the debt consolidation company makes a deal with your lenders. The lender may get some of the interest he is owed, but he will not get the majority of it. He will probably get something like 0 -10%. Some lenders willingly settle debts for much less even than the original amount that was borrowed. Like say you joined a music club and received 5 cd's valued at $50 altogether. The interest has caused the total you owe to rise up to $75. The book club may willingly settle your debt for $37.

Lenders do things like this all the time when it comes down to the wire, and they just want to get some of their money. But they do not like to do this for obvious reasons. In fact it can make them frustrated.

When new lenders see a debt consolidation on your record; this sends up a red flag to them. They become very afraid to lend money to you. The only way to change this perception is to spend the two years that your credit is going to be greatly effected by your consolidation, filling up your credit record with positive entries.

By the time you go to see a lender again--two or three years from now--your credit report will be so full of entries that make you look highly reliable. And when they realize you went through a consolidation, and made so many positive changes after words, they will probably take a chance on you.

In addition, seven years from now you will have a whole new credit report showing great things to lenders. This is the ideal place to be, so don't be discouraged by the brief credit blemish.