A credit record is basically a history of someone’s previous borrowing behaviour that lenders use to help decide whether to lend to someone or not, and at what rates.
It used to be that it was purely negative things like missed payments, but these days, comprehensive credit reporting also lists positive things like recurring, regular and on-time payments.
However, it’s not just about how someone repays a loan they already have. Part of that history is how often someone requests or takes out a new loan. Could be a credit card, could be a mortgage, could be a personal loan. It all gets snapped up in the credit record.
This is also where “credit scores” come in. This is just a number that summarises someone’s overall behaviour. The higher the score the better.
Okay, that’s all very interesting, but where does debt consolidation come in?
Depending on the lender that’s looking over the credit history, someone who takes out a few loans in certain circumstances (e.g. lots in a short amount of time) could be considered a “red flag”. This can make it harder to get a loan in the future.
Debt consolidation is, for the purposes of a credit record, a new loan. You’re using it to pay off other loans, true, but a credit history check doesn’t always take that into account. It depends on how deep the lender digs into the history.
In short? Debt consolidation loans show up on a credit record, and it isn’t always a good thing to have. Many lenders see a debt consolidation loan as no problem, but some others do.
Credit histories don’t last forever. After 7 years, credit records are removed, including debt consolidation loans.
This doesn’t mean that someone who gets a debt consolidation loan will be unable to get a good loan for 7 years. Making regular repayments and avoiding multiple missed payments can be enough to keep you in the green.
This was originally posted as an education article on the Money Sweetspot customer portal. If you read this as one of our customers, you would've earned some money off your loan! Do the mahi, get the treats. Find out more.
You are protected by responsible lending laws. Because of these protections, the recommendations given to you about our loan products are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations. This includes a duty to comply with a code of conduct and a requirement to be licensed. Responsible lending criteria, rates, fees and contract terms apply. For more information visit useful information.
© 2024 Money Sweet Spot Limited