If you want to repair your credit score, you might want to consolidate credit cards. If your credit score is going down, that means you need to improve your financial situation. To be specific, you need to do something about your debts. After all, that is what this score is trying to measure. If you have a low score, that means your credit situation needs a lot of improvement.
The truth is, the average credit score of Americans is 695. This is not so bad since it is considered Fair (660 – 719). But if you want it to be excellent, you need to work on your current debts to raise your score.
If you mostly have credit card debts, that should be a good place to start. This is one of the debts that can destroy your finances if you cannot control it. The high-interest rates can quickly make your balance grow. As your debts grow, it can affect your credit utilization. So if you can pay off this debt, you can keep that from happening.
Of course, paying off debt is easier said than done. This is why you need to choose to consolidate credit cards. This debt relief option, when done correctly, can make your debt payments easier. Not only that, but it can also help repair your damaged credit score.
How to repair credit scores when you consolidate credit cards
But how exactly can your credit score be repaired when you pay off high-interest credit card debts?
When you consolidate credit cards, you will be restructuring your repayment plan. The multiple credit accounts that you have will be combined under one account. This will simplify your monthly payments and may even help lower the interest rate that you will pay on the debt.
But how will this affect your credit score? How will it lead to its improvement?
Less likely to miss payments
First of all, the simple repayment plan will ensure that you will not miss out on a payment. At least, if you act more responsibly when it comes to your debts. With one monthly payment instead of several, it is less likely that you will forget to send your payment.
When you start paying your debts regularly, you can expect that your credit score will steadily rise. After all, your payments will influence 35% of your credit score – specifically for FICO scores. This is why late payments can quickly make your score go down. To correct that, you simply have to meet your payment deadlines. It will not make your score improve overnight but it will steadily improve it as you meet one payment after another.
Focus on earning more
Another reason why you can repair your credit score when you consolidate credit cards is to lower the level of stress that usually comes with debt relief. The simplicity of the repayment plan means you do not have to spend a lot of effort into managing your debts. This will give you the freedom to focus on other things – like earning more money to pay off your debts. The sooner you can pay off what you owe, the lower the credit utilization rate will be. This will also contribute to the improvement of your credit score.
Save more money
Finally, when you consolidate credit cards, you have the chance to change the terms of your original repayment plans. This means you can have a lower interest rate. Credit cards are notorious for their high-interest rates. The average APR of credit cards is between 16.75% and 23.62%. Any loan that you will use to consolidate this will probably be lower. This will help you save a lot of money on the overall debt payment that you will make.
Learn good credit habits when you consolidate credit cards
You can do more than just improve your credit score while you consolidate credit cards. There are also a couple of good credit habits that you can learn as you follow through with your debt consolidation plan.
Make timely payments
There is nothing wrong with using credit – as long as you learn how to make timely payments. You should avoid being late on your payments because that will not just affect your credit score. It can also make your debts grow. Late penalty charges will be added to your balance. This is another amount that you need to pay off and you should avoid that at all costs.
Borrow only what you need
Another thing that you can learn when you consolidate credit cards is to borrow only what you need. At least, this is for the loan that you will use to consolidate your multiple accounts. But this will also teach you how to keep your borrowing to a minimum. You know how hard it can be to pay off debt. If you learn your lesson after paying off what you owe, you should be more cautious about how much you will borrow next time.
Have a repayment plan for debt
Finally, you need to learn to have a repayment plan ready before you use credit. The society that we live in makes it near impossible to stop using debt. If you want to maintain a high credit score, you need to keep using credit. But you need to be smart about it. Having a repayment plan before borrowing will ensure that you know how to pay it back.