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Will Debthunch Hurt Your Credit?

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Debthunch

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Who Is Debthunch?

Debthunch isn’t a lender. They appear to be a lead generator selling consumer leads to the highest bidder. They are primarily selling to debt settlement companies but they are sending out direct mail offering 0% interest rates. It seems a bit misleading to me,

You probably received a mailer with a personalized debt consolidation analysis offering a savings of $667 per month with a 0% interest rate and promising to save you $71,550.

Seems a little good to be true?

And off you go looking for Debthunch reviews.

Debt consolidation is becoming increasingly popular among those who have debt coming from multiple sources and want to achieve more streamlined finances.

It’s a debt repayment tactic that bundles together all your debts such as credit card debt, outstanding medical bills, student loans, and car loans at one place for some fees. Based on your credit situation, your lender will come up with a single payable interest rate that applies to the consolidated debt.

With all your debt under one roof, you may find it remarkably easier to pay off your debt via the debt consolidation route. But a major concern for all those considering debt consolidations is whether this method hurts your credit score or not. Why should your credit health suffer if you’re determined to pay off your debt?

The fact is: debt consolidation has the potential to be strongly favorable for your credit, but if not handled well, it can prove just as disastrous. In this guide, we’ll comprehensively address your question of ‘will debt consolidation hurt my credit?’ By the end of the article, you should be in a much better position to decide whether debt consolidation is right for you.

How Does Debt Consolidation Impacts Your Credit Score?

The two most common debt consolidation approaches include debt consolidation loans and balance transfer cards.

The former is a personal loan people obtain and use to pay off multiple debts. Since the loan has fixed terms and interest rates, things get a lot more predictable for you. You know exactly how much is to be paid each month and know exactly when all your debt will be repaid.

On the other hand, the second popular approach is to transfer all your debt to a low-rate balance transfer card. You’ll save on interest during the short introductory period, but the rate will surge after that and will remain subject to change thereafter, making things less predictable.

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Ways Debt Consolidation Hurts Your Credit

Triggers Hard Inquiries: Whenever you apply for credit, including debt consolidation, the lender makes a hard inquiry into your credit. This means they’ll evaluate your creditworthiness by pulling your credit from a credit bureau. The problem is that each hard inquiry adversely affects your credit score, causing it to dip for a few months.

Hence, before you move forward with a lender, make sure you’re up for a hard inquiry and the associated impact on your credit, or choose a lender who allows you to prequalify online with a soft pull or soft credit check that has no effect on your credit.

Decrease in the Average Age of Your Accounts: Considering you have a proven track record of making payments on time, having a long credit history helps keep your credit score high. It contributes to around 15& of your FICO score. However, obtaining a new debt consolidation loan reduces the average of all credit accounts, resulting in a dip in your credit.

On top of that, you could be tempted to close your old accounts after getting a debt consolidation loan or balance transfer. This not only reduces the average age of accounts even further but may also increase your credit utilization, both of which will certainly damage your credit. Therefore, it’s always best to keep your credit accounts open, as long as there’s no risk of racking up more debt on them.

Increase in Your Credit Utilization: Your credit utilization ratio, which is the proportion of your available credit that you’re using at a certain point, makes up around 30% of your FICO score. Upon consolidating your debt, if the ratio increases, your credit score will take a hit. For example, if your existing credit card has a balance of $5,000 and a limit of $20,000, your credit utilization ratio would be 25%. If you seek a balance transfer and you’re your $5,000 moved to a new credit card that has a limit of only $10,000, your credit utilization ratio on the new card will be 50%, potentially hurting your credit score.

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Ways Debt Consolidation Helps Your Credit

Diverse Credit Mix: The different types of credit accounts add up to make your credit mix. The most common types include installment debt and revolving debt. The more diverse your credit mix is, the better it is for your credit score. Obtaining a debt consolidation loan means you’re adding to your credit profile an installment loan. This may boost your credit score a result.

Decrease in Credit Utilization: If the percentage of your available credit that you’re using decreases as you consolidate your debts, your credit score may improve. This is exactly the opposite of how an increase in the credit utilization ratio would hurt your credit. But again, if you let your credit card balances run up again, it can exacerbate your debt and credit situation instead.

Payment History: Payment history is the most influential factor, making around 35% of your FICO credit score. If you already have an impressive track record of making payments on time, debt consolidation won’t make much difference to your credit health. However, if the streamlined payments on your debt consolidation make it easier for you to pay on time, every month, debt consolidation can significantly improve your credit score.

Conclusion

By now, you should have developed a fair idea about how debt consolidation impacts your credit. There are several factors that together make up your credit score. When consolidating your debt influences those factors, your credit will inevitably take the impact.

Having said that, it’s important to understand that debt consolidation alone doesn’t solely hurt or improve your score. The way you behave after consolidating your debt matters big time. This means you need to stay on top of your monthly payments and avoid accumulating more debt again.

We hope that your query of ‘Will debt consolidation hurt my credit’ has been answered. When you know the ins and outs of how debt consolidation impacts your credit, your decision should be easier. To get started, check whether you qualify for a debt consolidation loan or not.

Jayden Taylor loves spending time with her three children and husband of 14 years. She enjoys reading, writing, and personal finance education. After overcoming significant debt through consolidation, Jayden is passionate about helping others do the same. When she's not working or spending time with her family, you can find her hiking or camping in the beautiful Colorado Rockies.

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