The purpose of consolidation loans is to repair your credit score. It is considered as one of the best ways to improve your credit score. When you have multiple credits and are unable to repay them on time, you can take out a debt consolidation loan and repay all of them. By repaying all the other loans, your multiple credits are closed positively with 100% repayment record. You will now have a single loan i.e. debt consolidation loan.
After repaying multiple loans, your credit score will remain stable and a drop is impossible at this point of time. Hence, a consolidation loan has indeed helped you regain your credit. You will now have a fresh credit which needs to be repaid month on month until completion. On regular repayment without defaults, you can certainly see your credit score improving gradually.
After taking out a debt consolidation loan, in case you fail to make payment on time, the chances are higher that your credit score will take a hit. This is due to your credit behaviour that your credit score gets affected. You need to ensure that repayment is made consistently to keep your credit score intact.
Do you have bad credit and look for ways to improve it? Check out CreditMantri’s Credit Improvement Services.
Additional Reading: Debt Consolidation Loans for the Self -Employed