Sometimes the best way to improve your credit rating is to consolidate your outstanding debt. This is especially true if you've got a lot of smaller debts that you make payments on each month. The right loan can consolidate all of these debts into one manageable payment

You want to be aware, however, of one factor credit reporting companies use when determining credit worthiness. If your total borrowed amount is more than 30% of the credit limit on the loan, it may actually lower your credit rating.

Refinancing

Another way to go is to refinance your larger debt, such as mortgage and auto loans.

More information on all of these options including types of loans and how best to take advantage of each below.

Types of Loans

There are many types of loans you can apply for. The application process is similar for most types.

• Second mortgages
• Refinancing loan

How Loans Affect Your Finances

Companies that offer loans have specific requirements you should be aware of when shopping for a loan. These requirements determine the amount you qualify for, the interest rate you get and ultimately what the loan costs you.

Most loan companies use the credit rating based on the FICO® score from all three primary credit reporting agencies. For an example of how that affects your bottom line see the following chart:

How your credit rating score affects you when applying for a loan

Only considering the monthly payment, you can see that the highest credit rating saves you more than $600 a month over a rating between 500 and 579. That adds up to a savings of over $7,300 per year for the highest credit rating and an overall savings for the life of the loan of $219,240!