Debt Consolidation and Credit
The way debt consolidation helps your FICO credit scores not only by raising them, is by lowering the debt ratio. A debt-to-income ratio is a measure of financial stability calculated by dividing monthly minimum debt payments by monthly gross income. Typically, the lower your ratio, the better handle you have on debt. The only way a debt consolidation loan can hinder your credit score is if you run up too many inquiries shopping for an equity loan, run up the debts again after getting the loan or you stop paying your bills on time. According to Fair Isaac and Company, if you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. They go on to say that looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.
If you are tempted to use the credit cards you just paid off, cut them up or lock them away in a safety deposit box. But, save two major credit cards (American Express, Visa, MasterCard, Discover) and use them SPARINGLY. Keep balances at 30% of your credit limit or lower and pay your bills on time. Closing revolving accounts you have paid can hurt your credit scores by raising your debt-to-income ratio and making your credit history look younger than it actually is. Keep the credit accounts open, but just do not use the credit cards. A refinance or second mortgage for debt consolidation is available as a fixed mortgage rate loan or an adjustable rate mortgage (ARM). Check with your lender to see which is best for you.
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Maria Ny is a well-known free-lance writer from San Diego, California. She has many published articles that cover a variety of subjects ranging from Bill Consolidation, Bankruptcy Reform, Credit Repair to Subordinate Mortgages. Check out her helpful articles online at BD Nationwide for mortgage refinancing. You can learn more about financing home improvements and get additional loan program parameters. Get a free loan quote for a 125% Second Mortgages. We suggest you get more information and learn more about the guidelines for Home Equity Loans that could help reduce your monthly expenses by reducing the high interest rates of your credit card debt. Article Source: http://EzineArticles.com/?expert=Maria_Ny
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