Loan consolation is a measure taken for debt-management and payment. Due to several reasons one may need to consolidate his loans. One may do it to lower his interest rates on debts, or to lower his monthly payment. Some do it in order to have only one loan to manage.

Loan consolidation may have many benefits but be wary, for it can have an adverse effect on one’s credit score too.
Several factors affect one’s credit score; his payment history, length of his credit history, the ratio of debt to credit available to him and the number of new credit lines he opens included. Loan consolidation affects three of such: the debt-to-credit ratio, the average length of credit and the number of lines one open.

Thirty percent of your credit scoring depends on the money amount you owe. One factor that goes into this portion of your credit score formulation is debt to credit ratio. This is the ratio between the money one owes on a line of credit, versus the money available to him on that line of credit. So if one is having a $5000 credit available on a line, and borrows $2500 he is using 50% of his credit available. The less the credit available used, the higher your credit scoring gets. By consolidating loans one gets all his loans on a single line and his credit report show that he is using 75% above or even 100% of a line, which is a negative on his score.

Your score is fifteen percent defendant on the average age of your accounts. This is an average calculated by determining the time since each of the credit line was opened. When one consolidates his debts; this new loan is a new source of his credit. Thus it lowers the average age of his credit and consequently lowers his credit score.

Consolidating loans may be considered a bad idea by some, for it causes unhealthy impacts on credit score. Because in case of lower credit score (especially with private loan consolidation), one will be eligible only for high interest rates.

However, one can save money quite easily, if loan consolidation is used in a sensible way. Plus the impacts on credit score are not permanent, as one return his debt, his debt to credit ratio lowers back.