How Does Consolidation Affect Your Credit Report?

Truth is that these processes consist of a cluster of measures that include byzantine negotiations with creditors and implementation of budgeting techniques that need some time to start showing results. But in the meantime consequences on your credit score and history are simply unavoidable. Let’s analyze what they are and why they happen:

Current Delinquent Accounts
While you start a debt consolidation or management program, your accounts and balances being negotiated may be considered delinquent accounts because the repayment is suspended. After negotiations, lenders tend to exclude these accounts from their delinquent reports for credit bureaus. And though this isn’t necessary the rule, it is a fact that can be negotiated among other things. And it can be imposed as a condition for creditors by negotiators to retake the repayment of debt.

The time frame that will determine when your creditors start reporting your accounts as clear and to account for your timely monthly payments is variable and it really depends on the lender and your agent’s negotiation ability. The reasons for this to happen are varied but they basically have to do with the delays associated to any negotiation process that involves borrowers and creditors even when there are intermediaries on a particular field.

What Should I Expect?
Even the accounts that are current once you start the consolidation program should be expected to run late for at least a month or two. Depending on your creditors the situation may be even worse. This is due to the fact that some of them require at least three periods of payments through the agency to reconsider the account state. This implies that your account will show late or missed for at least four months.

All this should be taken into account upon joining a debt consolidation program especially if you think you’ll need finance in the near future. During this period, which can last up to 6 months but usually lasts 4 months top, your credit score will drop due to the missed payments and you’ll find it very difficult to obtain finance. So, don’t forget to mention this fact to the agent that guides you through the consolidation process. If you are going to need finance, it might be a good idea to postpone consolidation for a couple of months.

Also, even if you do not need finance, you shouldn’t be surprised if your credit score drops dramatically at the beginning and you shouldn’t judge the results of the consolidation process till it finally is completed. Or, at least, you shouldn’t worry about your score till after the first six months of the consolidation process have ended.

LiveJournal Tags: Credit Score, Credit Report