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CONSOLIDATION CONSEQUENCES?
Will consolidating my student loans affect my credit in a negative way? — Liggia G. , Miami, Fla.

It shouldn’t — by itself — if you’ve made your payments on time. Even if you’ve missed payments, if you consolidate at a lower rate, your credit standing could improve because your total debt load would be lower. But if you apply with too many lenders at once, those inquiries could lower your score.

The biggest impact on your credit score generally comes from your credit history — how well you’ve done in paying your bills on time (35 percent). The next biggest factor (30 percent) is the amount you owe — so if consolidating cuts your debt load, that’s a good thing. The other factors: How long you’ve had credit (15 percent) and the types of credit (10 percent) won’t change. The only place you many get dinged is if the consolidated loan is added as “new” credit (10 percent).

But don’t get too hung up on credit scores. Just as plenty of kids with perfect SAT scores don’t get into Ivy League schools, a “perfect” credit score doesn’t guarantee you a loan any more than a “bad” score forever banishes you from getting credit. Sure, it’s important to keep a good credit history. But it’s easy to get carried away worrying about that three-digit number. Different lenders view scores differently anyway. If you only carry debt that you can afford, and pay your bills on time, you should be fine.

The biggest problems come when people consolidate credit to lower their monthly payments by stretching out payments at at higher interest rate. This slight of hand is very popular among debt consolidators because many people don’t realize they’re stuck a bigger pile of debt. They just focus on the lower monthly payment.

So watch out for those “debt consolidators” lurking on the Internet and late night TV. For more help with debt consolidation, contact the National Federation of Credit Counselors in your area.

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