If you have a lot of debts, chances are that your credit rating is low. This is mainly because, too many unpaid lenders simply translate to too many charge-offs on your credit report. A charge-off in this case can be looked at as a black mark on your credit report, and in most cases it is very effective in scaring off potential lenders. If you are one of those people with so many debts, regardless of how small they are, you are likely to have some negative response once someone looks at your credit report. This means that consolidating your debt is actually a good idea as it will contribute significantly to improving your credit score. With more paid debts and thus fewer charge-offs on your report, your credit rating will simply improve significantly.What is debt consolidation really?
Debt consolidation is basically a process in which you take out one loan in order to pay off your other debts. This means that you will be acquiring one large charge-off on your credit report in order to eliminate numerous small charge-offs. At a glance, consolidating your debt is not a good way of dealing with your financial situation. It simply implies transferring your debts from several creditors to one. You will thus have the same amount of debt, although the interests in this case are newer and possibly cheaper.
It is also a sure way of improving your credit rating and thus enabling you to get a mortgage. You will still have a pending loan to service, but you will not be having as many creditors as you previously had. People with fewer creditors simply have a better chance of getting a new loan compared to those with too many charge-offs on their credit report.How does this help if you want to buy a home?
When you apply for that mortgage, the first point of interest during the pre-approval stage is your credit rating. Regardless of the report from your prequalification, your credit rating is likely to affect your pre-approval significantly. This means that if you have a lot of debts, you are not likely to get approved for a mortgage. This is where debt consolidation comes in.
Instead of risking your mortgage approval by applying while you have many unpaid loans, it may be better to consolidate your debt and clear up as many charge-offs on your credit report as possible. With debt consolidation you will remain with only one seemingly large debt, meaning that you are more likely to get approved for a mortgage provided you meet all the other requirements.
Debt consolidation will improve your credit rating by reducing the number of people that you owe. This means that you will have less creditors, and in a mortgage application the fewer your creditors the higher your chances of getting approved. Lenders generally prefer clients who have a reputation of paying their debts. You can speak to us about your mortgage concerns and we will be pleased to share our ideas and solutions with you.