Credit rating is very important as it determines how healthy our financial record is. Having a good rating will provide us channel to faster loan approval, higher loan amount and lower loan interest rate.

On the other hand, if you do not have a good credit rating, you will suffer from getting lower loan amount and paying higher interest rate.

So if you decided to go for debts consolidation exercise, how it will affect your future credit rating is very important.

If you are just consolidate all your loan into a single loan account for easy management or longer payment tenure, it will not affect your credit rating as you still settle the full amount of your outstanding loan.

If negotiating to reduce your debt is part of your debts consolidation plan, you may be penalized with a lower credit rating as you are not able to payback your debts fully. The financial institution force to accept your plan to recover part of the loan amount in return you will have to accept a bad credit score in your record.

However, the damage is not as severe as bankruptcy. As long as you can maintain a good payment record in 3 to 5 years, you will be able to regain your good credit rating status in the future.