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How Your Credit Score Can Affect Your Consolidation

You might not think a credit score is important when consolidating, but this number decides whether or not you can get a loan, and what interest rate you get that loan at if you qualify for a loan. You might not be able to get a consolidation loan or a line of credit from your bank if your credit score is too low. Or you may end up with a higher interest rate due to a lower credit score, and even a small increase to the interest rate you are paying on a loan, compounded over 10 years, can add up to thousands of dollars of difference.

Your credit score is also called your FICO score, which gets its name from the Fair Isaac Corporation, the company which does the math to determine your credit score. The score is based on a very complicated algorithm, which is itself based upon a variety of factors. These factors include how much credit you have available, how much you owe, what your payment history has been like, the length of your credit relationships (longer seems to be better, so keep that credit account from when you were 20 open), and any charge-offs or bankruptcies which appear on your account. Your credit score can also be affected by recent inquiries on your credit, and if you have recently opened a credit account. This information is compared against every other American who has a credit history of any form, and everyone gets a credit rating. This score tells lenders how likely you are to pay back a loan.

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 Your credit score is a number from 300 - 800. Most people's scores land between 600 and 800.

Your credit score affects you when you sign up for a cell phone plan, when you try to get a mortgage, if you are applying for a job that deals with money or sensitive information, and in any area where you might end up owing someone money, such as renting an apartment.

You can find out your credit score for free from one of the 3 credit bureaus. Equifax, being the biggest of the 3, may be where you want to start. Each bureau is required to give you one free copy of your credit report each year. The 3 bureaus are fairly similar in what they record, so you can try pulling a report from one of the 3 companies once every four months, which allows you to keep an eye on your credit report and protect yourself from identity theft without having to pay for copies.

You should know what your credit score is before you apply for a loan. This will give you some idea of what interest rate to expect, as well as giving you an opportunity to dispute any errors on your report before you try to get the loan. You might also want to work on improving your credit score before you consolidate, if you have the time.

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