Your FICO credit score will affect what type of consolidation loan you can get and how much interest will cost you. Rates can vary several percent based on the information in your credit report, which your credit score is determined by.
Debt consolidation loans aren't your only option. Working with a debt consolidation agency can also help you lower your rates. But this option will affect your FICO score and future cost of borrowing.
How Your FICO Credit Score Works
The FICO scoring system was developed by the Fair Isaac Corporation. Each of the three major credit reporting agencies use this system to generate your credit score. Because a credit bureau may only have partial credit information on you, your credit score can be different with each agency.
FICO scores change constantly. Every time you make an on-time payment, open a credit line, or borrow ñ your score changes. Scores 700 and above are considered prime. They get the best market rates. Credit scores below 600 qualify for subprime rates, which can be significantly higher than prime rates.
Your Credit Score Only One Loan Factor
Your FICO credit score in only one factor lenders consider for a debt consolidation loan. Your income, cash savings, and collateral will also affect the type of loan you qualify for.
You can also find lower rates by comparing loan quotes from lenders. Online you can get near instant loan quotes based on your personal financial information. Besides shopping rates and fees, you can negotiate with lenders for cheaper loans.
Other Debt Consolidation Options Besides Loans
Debt consolidation agencies are also able to reduce the interest rates on several types of loans and bills. They handle your monthly payments and deal with your creditors. However, your FICO score will temporarily drop until your debt is reduced with on-time payments.
The better your FICO score, the cheaper your debt consolidation loan rates will be.
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