If you landed yourself in debt, you can expect that your credit score is not as healthy as it used to be. Your debt amount affect 30% of your credit score computation. That means growing your debt without having a clear plan to pay it off will continue to lower your score and taint your credit report.
One of the best ways to get rid of your debt without affecting your credit score is to consolidate your debts. This will not reduce your debt and you end up paying for everything else that you owe. That will mean your credit report will not reflect that you are in a debt relief program. If it does, it will only have a minimal effect and it is usually not negative.
What debt consolidation does is to restructure your debt payments so that it is more manageable. The goal is to lower your monthly payments by distributing your current balance over a longer payment period. If you are working with a professional they will also negotiate with creditors so you can be awarded with a lower interest rate. That will reduce your monthly requirement even further. It should make it easier for you to keep up with your debt obligations and thus eliminate late payments. If you did not know, 35% of your credit score is determined by your payment history. If you are good with payments – meaning you are never late and you pay at least the minimum, your payment history will be quite positive. That will give your credit score a good boost.
As you pay what you owe and you do it correctly, your credit score will continue to rise. Your payment history will reflect a good payment behavior and your debt amount will keep on decreasing. That means 65% of your credit score is increasing. As you eliminate your debt, that will grow even further.
Of course, there are other things that you can do to keep your score high. One of them is to stop acquiring more debt. Remember that your debt amount is 30% of your score. Make sure your credit report will no longer reflect that you are still taking in more debt. That could mean keeping your credit cards to avoid the temptation of using them again and thus adding to what you already owe.
Practicing proper financial management skills will also help you out. If you know how to budget your money, you don’t have to be scared of getting a loan if it means you will grow your personal net worth. These include loans for home purchases or a business. As long as you have mastered budgeting, you can identify how much loan you can afford to take on. Not only that, you can make sure that your money will always be enough so you can always afford your debt payments. This article was written by Samantha Seiffert