- 1 Hornet Partners: Can You Trust Them?
Hornet Partners: Can You Trust Them?
Hornet Partners and Carina Advisors have joined Polk Partners and Credit 9 in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Carina Advisors (also known as Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Carina Advisors: Should You Trust Them?
Best 2019 Reviews also closely monitors personal loans, debt reduction, and credit card consolidation offers sent through direct mail to consumers.
If you’ve decided to opt for debt consolidation to repay your loans, you will be surprised to know that it may help your credit score.
However, this depends on what is in your credit reports. Credit score agencies, such as VantageScore and FICO, give prime importance to the debt-to-limit ratio. This ratio is present in your credit card account and is also known as the credit utilization ratio. If you are utilizing a large percentage of your available credit, then your credit score is likely to suffer.
How Debt Consolidation Can Help Your Credit Score
Consolidation loans are not treated in this manner, as far as credit scores are concerned. Let’s say you owe $31,000 for a consolidation loan and also carry a $3,000 debt on a credit card with a limit of $3,000. Since you have utilized 100% of your credit limit, this factor will have a far greater effect on your credit score than your consolidation loan. Unfortunately, the effect will not be favorable to you.
If you take a debt consolidation loan to pay off your credit card debt, then your debt utilization ratio will fall. With the help of a debt consolidation loan, you can possibly reduce your debt utilization ratio to 0%.
Therefore, if you use a debt consolidation loan to pay off your credit card liability, your credit score may improve.
Here’s the truth about debt consolidation. With debt consolidation, you are replacing the liabilities on your credit cards or some other loan with a different debt. Debt consolidation is a wise choice if it can result in a lower interest rate or ease your payment plan. The right debt consolidation strategy can save you money and improve your financial situation.
You can consolidate your debt through many different ways, such as debt management plans, balance transfer credit cards, home equity lines, and personal loans.
The Effect of Debt Consolidation on Your Credit Score
When you apply for a debt consolidation loan, then a hard credit check is performed, which will reduce five points from your credit score. A hard credit check will show on your credit report for up to 2 years. However, the effect on your credit score will last for one year.
However, once you receive your debt consolidation loan, it can bring your debt utilization ratio down to zero. Since the credit utilization ratio is a vital factor in determining your credit score, using a debt consolidation loan to bring down this key ratio may have a positive effect on your score. If your debt utilization ratio was very high prior to taking the debt consolidation loan, then the resulting positive effect on your credit score will be greater.
To calculate your debt utilization ratio, you should divide your credit card balance by your available credit limit. Therefore, if your credit card balance is $1,500 and the credit limit available is $3,000, then the debt utilization ratio is 50%. According to experts, you should keep your debt utilization ratio under 30%. This ratio is determined for all of your cards, individually and collectively.
A personal loan is a great way to consolidate credit card debt as it will bring your credit card balance to nil. Your debt consolidation ratio will stand at 0%. You may note a substantial improvement in your credit score if the debt utilization ratio before the debt consolidation loan was very high.
Balance Transfer or a New Credit Card
You may witness the same benefits if you take advantage of a balance transfer offer or have access to a new credit card. You can benefit from a new credit card because many often have an introductory 0 APR for a few months. After using the balance transfer offer or the new credit card, your debt utilization rate will be computed once again. The ratio will equal the balance transferred, divided by the card’s credit limit. The transaction will likely reduce your debt utilization ratio and have a positive on your credit score. But if it increases the debt utilization ratio, then it will be detrimental to your credit score.
Then, there is the effect of paying off your new balance. As you pay off your new balance, the debt utilization rate will go down further and improve your credit score.
Debt Management Plan
If you want approval for a balance transfer credit card or personal loan, then you need to have a good credit score. Your FICO score must be at least 670. If your score is below this level, then a credit counseling agency can provide you with a debt management plan.
Under the plan, your credit counselor will give you advice on how to best manage your money for paying off your debt. Besides working to improve your money management skills, the agency will also make monthly payments to your creditors after receiving the aggregate monthly amount from you. Therefore, a credit counseling agency strives to improve your financial habits and simplifies payments to multiple creditors.
A debt management plan does not have a direct effect on your credit score. However, in order to start one, you may have to close down your credit cards. This may impact your credit history duration and your credit score.
If you have missed some of your payments, the credit counselor can negotiate with your creditors so that the payment status is updated to current. Your credit score may get a significant boost from this step.
Should You Go for Consolidation?
Debt consolidation can have a positive or negative impact on your credit score, depending on your situation. However, you should also factor in other key benefits. For instance, even if transferring your credit card balance raises your debt utilization rate, it is still possible that the zero percent introductory APR may help your financial situation.
Therefore, you should take stock of your situation and decide which option is most suitable for your needs. Keep in mind that the basic purpose of debt consolidation is to keep you debt-free. If the debt consolidation plan is helping you to achieve this end, then you should go for it.