Consolidating debt affects credit
Do not let others sell you on the importance of maintaining credit when you cannot maintain payments on the debt you have.Especially when your debt to income means you are not going to be getting approved for credit – even with a high credit score.After more than 20 years of helping people with debt problems, I can say with certainty that there is too much focus on the credit report and credit score when what is being sought is debt relief.Focusing on getting out of debt with the right tools comes first.This page will also help to dispel some myths that get regurgitated across the web.There are far too many misconceptions (and incomplete summaries), about credit reports and the harm that comes from credit counseling, settling debt for less than what you owe, or how bankruptcy will stop you from getting approved for credit.Long term this will mean a savings of tens, if not hundreds of thousands of dollars.
What follows will help you understand credit score impacts that relate to the most common and legitimate debt solutions.
If you have too much outstanding debt, no matter if you have always paid those bills on time, you get declined for new credit.
Your 720 or higher credit score will be something you can wear around town and be proud of, but if your credit card debts have you stretched thin from one month to the next; your credit score has lost its utility function.
Another example of the new normal are the increasing changes to credit underwriting standards for home loans that will impact most people. But if you are carrying too high a percentage of monthly debt payments compared to your monthly income, your credit rating has lost its utility function.
The CFPB’s new qualified mortgage rules will now impact your ability to get approved for a new home loan, or refinance an existing loan. You cannot effectively use that excellent rating without first implementing a strategy to pay off debts and bring your DTI in line with the lending standards being used in the credit market you are interested in.