Debt consolidation is the practice of taking out one large loan to pay off a range of smaller debts. When done correctly, there are many advantages to having one loan with a low rate of interest and manageable repayments; it can iprove your credit score, help you avoid penalties, and can be more convenient to keep track of compared with juggling multiple debts. But a little-known benefit of debt consolidation is that it can also help you get a mortgage. Here's how.
1. Improve Your Credit Score
The first reason why debt consolidation can help you get a mortgage is that making regular payments can quickly improve your credit score. Around 30 percent of your credit score is simply your payment history. If you have a track record of making late repayments or failing to make payments on time, your score may be lower than you'd like. Debt consolidation can help you quickly build a history of making repayments on time, and this can boost your credit score. The higher your score, the better your chances of getting a mortgage.
2. Reduce Negative Marks
The second reason why debt consolidation can help you get a mortgage is that it can reduce your chances of getting negative marks. Marks can be applied to your credit file for a variety of reasons including missed payments and outstanding balances. Owing money to multiple lenders can increase your chances of getting negative marks. But consolidating your debt into one loan and making affordable monthly repayments can reduce the chances of getting these marks. Over time, this can help boost your credit score and increase your chances of getting a mortgage.
3. Get Charge-Offs Removed from Your Credit Report
The third reason why debt consolidation can help you get a mortgage is that it can help you get charge-offs removed from your credit report. Charge-offs are huge black marks on your credit file as they indicate that a lender hasn't been paid. If you have many debts, you'll have a greater chance of missing a payment and further damaging your credit report. Debt consolidation can reduce the chance of this happening by paying off your creditors and replacing your debt with one low, manageable monthly repayment that you will have less chance of defaulting on.
4. Avoid Never-Ending Debt
The fourth reason why debt consolidation can help you get a mortgage is that it can remove neverending debt. If you have high-interest credit card bills coming at you left, right, and center, you may be tempted to just pay the minimum. But this creates a never-ending debt that never diminishes. Debt consolidation lets you pay off high-interest loans so you just have a single monthly repayment to make. This not only saves you money; it also gets you out of the rut of paying the minimum on your credit card debt each month. By making the sum manageable you start to improve your credit score and better your chances of securing a mortgage.
If you are currently juggling multiple debts, consolidating these debts can help get you onto the housing market sooner than you think. The sooner you restructure your debt and improve your credit score by building up a history of making payments on time, the sooner you'll be approved for a mortgage.