Does Consolidation Loans Affect Your Beacon Score?

So you have 3 credit cards totaling $8,500, a student loan of $3,400 and a line of credit showing a $7,600 balance. You just can’t keep up with all those bills and tend to forget to make your payment on time. You are also paying a very high interest charges on your credit cards and you are trying to find a way to get through this mess.

The logic decision should be to apply for a consolidation loan. You would pay off all you existing debts, reduce your interest charges and have a single payment to make every month. Even better, you may pay a smaller payment if you take a longer amortization.

But does the fact of consolidating your debts can affect your credit score?

The short answer is no but you need to look further before filling out the loan application. In fact, your first consolidation won’t do much on your credit history and banks have good chance to be favourable (if you show decent ratio, a good credit bureau and a positive net worth). Only the inquiry to the credit reporting agencies will drop momentarily your Beacon score. A loan request would usually cost you 1 to 5 points so it is definitely not the end of the world.

However, if you are doing your second or third consolidation loan, banks might be more cautious and dig a little further. Then again, it won’t affect your credit score, but the fact that you keep asking to consolidate your debt will show your creditor that you are unable to manage your money properly.

If you are about to consolidate your debts, the important thing is to not wait until you miss payments on your credit cards. This would definitely decrease your beacon score and increase your chances of being decline for a loan application.

This is exactly the same thing if you have maxed out credit. When you see that you can keep up with the payments, don’t wait and consolidate right away. Maxed out credit cards show financial institutions that you can’t manage revolving credit and chances are that you will fill your credit cards the morning after the bank paid them off of the consolidation loan.

To summarize this post, we would say that consolidating your debts must be done as soon as possible in order to avoid delinquency and therefore bad credit marks. Requesting a loan to pay off your debts will not affect your beacon score, but your previous credit behaviours will.