Posts Tagged ‘protect your credit with payday debt consolidation’

How To Protect Your Credit Score When Consolidating Payday Loan Debt Accounts?

When it comes to consolidating payday loan debt accounts, there are plenty of factors that you need to take into your careful consideration. Before you start hunting for a legitimate debt consolidation agency, you must first look at other aspects associated with this strategy in order to make an informed decision whether this method makes the right fit for your specific situation or not. It is very important for you to keep in mind that consolidating debts is usually very helpful in settling the otherwise impossible looking debts, but it also damages the credit situation of the borrowers. Therefore, make sure you review the pros and cons of this method thoroughly before you go for it. You must first review complete detail on how your credit score is affected because of debt consolidation and learn about the various strategies that can help you protect your credit. You will find the following information very useful in this regard.

How Debt Consolidation Puts Your Credit Score At Risk?

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In order to understand why consolidating payday loan debt accounts usually damages your credit, you must first learn about the various factors that are taken into account to calculate your credit score. There are five major factors that include, whether you are making your monthly debt payments in a timely manner or not, how much debt you owe against the available credit limit allowed to you, how many different types of credit you have and how you are handling the same, how many enquiries for new loans and credit you are making, and how fast your debts are reducing. The credit bureaus gather all the details from all those parties who you have borrowed money from. The entries on your credit report are made on the basis of the information provided by your lenders. When you consolidate your payday debts with the help of a consolidation agency and start making the payments as per the new agreement among you, your lenders and the agency, your lenders report the payments as “paid as part of a consolidation plan” or “paid partially as part of a new repayment plan”. When your payments are reported in this manner, it indicates that you are not financially disciplined and have not been very good in handling your finances on your own and that is the reason why you have to sign up for such a program as a last resort. The negative effects caused by such entries are almost as serious as entries regarding collections or bankruptcy.

Is There A Way To Protect Your Credit Score?

Despite the very fact that consolidating payday loan debt accounts can actually put your credit score at risk, there are still plenty of ways out there that can help you eliminate this risk and make the best use of the consolidation plan to get rid of your debt problems. In fact, once you eliminate the risk, you will actually have an opportunity to rebuild your credit and improve your fico score, such as by making regular monthly payments as per the new plan. To start with, you must first talk to the debt consolidation agency and ask them how they are going to protect your credit score. It is legally mandatory for all such agencies to disclose in their contract about the facts regarding how your credit situation will get affected because of the plan they are offering. A reputable agency will do their best to protect your credit; the most common strategy is that they negotiate with your lenders and convince them to report your payments as “paid in full”. If the lenders agree to such request, your credit score will not get affected negatively when you start making payments as per the new consolidation plan.

In fact, consolidating payday loan debt accounts with such an agreement in place will provide you an excellent opportunity to improve your credit score. All you have to do is just to make your monthly payments in a timely manner. Missing a payment at this stage will cause more financial trouble for you and things will become very complex. On the other hand, you can ensure significant increase in your credit score by paying off your debts (as per the new plan) faster. Besides that, in order to protect and improve your credit situation, you are also recommended not to borrow new loans; in fact, you should even stop making enquiries for new credit opportunities. If you are making a large number of enquiries within a very short period of time, it will hurt your credit.

Overall, if you keep in mind the above things and act accordingly consolidating payday loan debt accounts will not damage your credit; on the contrary, it will actually improve your credit health.

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What are the pros and cons of debt consolidation?