Debt consolidation to get a good credit score in Canada
To have good credit standing is an important financial goal for every Canadian. Good credit scores allow you to qualify for significant purchases such as vehicle loans and mortgages. Whenever you take out a loan, rent property, or apply for a job (in some cases), major financial institutions can conduct examinations of your credit history. Individuals with higher credit scores have a higher probability of getting approved as well as obtaining the full amount of the loan that they requested.
Everyone should have the ability to improve or repair their credit score, no matter their financial circumstances. In some cases, obtaining the ideal credit score and settling multiple debts feels like a daunting challenge, but it doesn’t have to be. One of the solutions to raising your credit score, while simultaneously relieving any outstanding balances, can be found in debt consolidation with your home equity.
Options to consolidate debt
You have a couple of available options when you have decided to consolidate all your debt into one payment. Banks are usually the first place that people turn to obtain a loan for debt consolidation, while others consult alternative lenders. Whichever one you connect with will have the same effect on your credit score. Making regular payments leads to a steady rise in your score.
With the banks
Financial institutions are a common source for loans. They usually have programs available for people looking to borrow in order to relieve some or all of their debts. However, the bank and their funding are not readily available to just anyone. Those who have less than ideal credit scores may be faced with barriers.
At the bank, some high standards are placed on potential borrowers, requiring a stellar credit score and a decent credit history. They may also attach high interest rates on their loans because usually the funds they give out are considered unsecured loans.
With alternative lenders
Those who get turned away at the banks need another option, so they look to other lenders who can offer both secured and unsecured loans. For example, some lenders like Alpine Credits can assist you with accessing your home equity, allowing for more flexibility and lower interest rates when consolidating your debts.
Alternative lenders typically have see less restrictive requirements. Additionally, debt management and settlement programs are offered and could be a better option to some people. Overall, some lenders do not conduct background credit checks and may not even need to know your debt-to-income ratio in Canada to lend money.
Repair your credit score with debt consolidation
Before explaining the effects of consolidating your debt can have on your credit score, it is important to understand the relationship between the two. The fundamentals of a credit score are that for you to have one, you need to have some amount of debt. It may sound surprising, but not all debt is bad. In fact, information such as repayment scores and types of loans are kept on reports to demonstrate your creditworthiness. Whether good or bad, the details are active for six years.
Without a credit card, people can’t begin building their creditworthiness. The rule of thumb with debt and building your score is to keep your credit limit high and to stay under 30% of that limit while paying towards more than the minimum required payment.
Effects on ratings
The effects of debt consolidation won’t be noticeable right away. In fact, you may see your credit score fall a little bit before it rises again. This is because taking out a loan, secured or unsecured, will always impact your credit rating in some way.
However, home equity loans are secured, meaning that you’ll likely have lower interest rates. Additionally, credit bureaus will see that your multiple debt sources have been satisfied, which will cause an increase in your score. Debt consolidation may not be a quick fix, but it is a reliable and manageable solution to keep you from a bad credit rating and reach more ideal scores.
Furthermore, continuously paying down the loan source without any late or missing instalments will also maintain and improve your credit rating. Your credit score will continue to rise and your financial obligations will decrease, leading you closer to a life of financial freedom.
You’ll be able to save more of your income, reducing your debt-to-income ratio by Canada’s standards. Carrying out debt consolidation earlier than later is also more beneficial, potentially saving you from having a bad credit score.
Debt consolidation with Alpine Credits
The effects of home equity loans and debt consolidation are very positive, but they shouldn’t act as the fix if you ever find yourself in an unideal financial situation. Obtaining a loan for debt consolidation gives you the chance to not only repair your credit score, but also reorient your financial plan.
With all these options before you, it can be difficult to determine what is the best choice. Regardless, debt consolidation is a great way to pay off some or all of your debts, and you can do so through a home equity loan. Unlike with traditional lenders who provide financing from their personal bank of funds, you use your own assets with a home equity loan.
Your credit history or income won’t be examined, allowing you to be more flexible with the amount that you would like to access. Interest rates are also comparatively lower, letting you apply your payments more towards the loan rather than the extra interest.
Contact a member of the Alpine Credits’ team of Financial Solutions Specialists through email or phone. They can answer your questions about debt consolidation and home equity.