Payday Loans Debt Consolidation

How Does Debt Consolidation For Pay Day Cash Advances Affect Your Credit Rating?

Debt consolidation for pay day cash advances is an excellent way to deal with payday debts that are otherwise very difficult to manage let alone pay off on your own. But, before you sign up with any debt consolidator or a debt attorney or a credit counselor, it is very important for you to have in-depth understanding on how this method affects your credit rating. You must have a very clear idea about both the short-term as well as the long-term effects of consolidating your payday debts on your credit score. You will find the following information very useful in this regard.

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The Short-Term Effects

If you try to look at each and every aspect associated with how debt consolidation for pay day cash advances works and how your credit score gets affected because of that, you will find that it is a rather complex thing to understand. Still, if you just focus on the key points, you can still get a good idea on how your can protect and actually improve your credit worthiness by using some smart strategies. First of all, it is very important for you to learn about how the credit bureaus make entries in your credit report. They do not do it on their own. It is your lenders who supply the information to them and then the entries are added to your credit report accordingly. This way, whether consolidating your payday debts is going to have a negative or positive effect on your FICO score depends very much on what kind of information your creditors provide to the credit bureaus.

While you are considering using debt consolidation for pay day cash advances works, it is very important to note that payday loan companies usually do not report at all to the three major credit bureaus (Equifax, Experian and TransUnion). In most cases, they only report to lesser known credit monitoring agencies that usually do not take part in determining your fico score. If that is the case with you, your credit will remain unaffected because your lenders are not reporting anything to credit bureaus at all. But, if they are sending the details about your debts to the three major credit bureaus, you will have to be extra careful with your strategy. If you do nothing and start making payments as part of the new consolidated repayment plan, your lenders will report the same to the credit bureaus and negative entries will instantly be added to your credit report, which will lower your FICO score immediately. Even if it is a short-term effect, the effect can be as damaging as it is in case of collections. Such negative entries usually stay on your report for a very long period of time. The only way to protect your credit rating from this damage is by convincing your lenders to report positively about your payments. You will have to find a debt consolidator who can successfully convince your lenders to hide the fact that you have actually defaulted on your loan and are now taking the help of a third party to pay off your debts as part of a settlement plan, where the lenders have agreed to reduce your debt balance.

Long-Term Effect

As we can see, when it comes to using debt consolidation for pay day cash advances, there can be some severe short-term damaging effect on your credit rating, especially if you do not succeed in convincing your lenders for positive reporting. The good news is that you still get an opportunity to rebuild your finances and to improve your credit situation. In the long run, your credit rating will eventually improve significantly. Always remember, there are two major factors that are highly damaging for your credit score – a very high amount of outstanding debt (30% of your FICO rating depends on the amount of debt you owe) and missed or late payments (35% of your rating depends on whether you are paying back the debts in a timely manner or not). When you consolidate your payday debts, it puts you in a much better financial position, where it becomes quite affordable for you to ensure timely repayment. Besides that, you also get a chance to reduce your outstanding debt balances much faster. If you consistently show a strong sense of financial discipline, you will end up having a very high credit score within a matter of just a year or two, depending upon how bad your payday debt situation is and how efficiently the debt consolidation plan you have signed up for is working.

Overall, debt consolidation for pay day cash advances does affect your credit rating and you are strongly recommended to keep the above things in mind while you are trying to make a final decision on whether you should consolidate your payday debts or not.

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