Does debt consolidation hurt your credit? | finder.com
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How debt consolidation affects your credit score

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The positive and negative impacts of moving your debt around.

Knowing the impacts that debt consolidation can have on your credit is as important as the consolidation itself. Do it right and your scores can climb accordingly. Do it wrong and your efforts can backfire.

How can debt consolidation affect my credit score?

In the short term, debt consolidation may lower your score, but in the long run it could actually improve your credit rating.

How can debt consolidation hurt my credit?

Creditors pull a hard credit check when you take out a new loan or credit card, which temporarily lowers your credit score. Getting a balance transfer credit card can cause your score to dip even more, as having a high balance on a single credit card could hurt your score. Your credit score isn’t entirely safe if you use a debt relief company either. Even if it successfully negotiates a lower balance and better rates, your creditor might report bad debt, which hurts your credit score.

How it can help my credit?

Using a debt consolidation loan might be a better choice for someone concerned about their credit score, especially if it helps you pay off your debt on time and quickly. That’s because on-time repayments are the most important factor in your credit rating — especially your FICO rating.

No matter which method you choose, remember: Less debt means better credit. If debt consolidation can help you reduce your debt, it will ultimately help your credit score.

Tips for consolidating debt without hurting your credit

While everyone’s situation is different, there are a few ways to lesson the impact to your credit while consolidating debt:

  1. Consolidate and pay off your revolving debt first. Revolving debts like credit cards tend to have a higher impact on your scores than installment debts. Prioritizing a zero balance on your revolving debts could reduce the impact on your credit.
  2. Make more than the minimum payment. If your situation allows for it, pay more than the required minimum on your consolidated loans.
  3. Make on-time payments. Showing creditors that you can make payments in a timely manner goes a long way toward keeping your scores intact.
  4. Only apply for loans or credit cards that you know you’re qualified for. Doing this will help you avoid multiple hard credit pulls, which can negatively affect your credit.

Compare options based on credit score

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Rates last updated January 24th, 2019

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Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Min. Credit Score Max. Loan Amount APR
Credible Personal Loans
Get personalized rates in minutes and then choose a loan offer from several top online lenders.
Good to excellent credit
$100,000
3.99% to 35.99% (fixed)
Even Financial Personal Loans
Get connected to competitive loan offers instantly from top online consumer lenders.
550
$100,000
3.84% to 35.99% (fixed)
LendingClub Personal Loan
A peer-to-peer lender offering fair rates based on your credit score.
640
$40,000
6.95% to 35.89% (fixed)
SoFi Personal Loan Fixed Rate (with Autopay)
No fees. Multiple member perks such as community events and career coaching.
680
$100,000
6.79% to 16.24% (fixed)
Best Egg Personal Loans
A prime lender with multiple repayment methods.
640 FICO®
$35,000
5.99% to 29.99% (fixed)
Monevo Personal Loans
Quickly compare multiple online lenders with competitive rates depending on your credit.
550
$100,000
3.34% to 35.99% (fixed)
Payoff Personal Loans
Pay down your debt with a fixed APR and predictable monthly payments.
640
$35,000
5.99% to 24.99% (fixed)

Compare up to 4 providers

Compare balance transfer cards

Updated January 24th, 2019
Name Product Filter values Introductory Balance Transfer APR APR (Annual Percentage Rate) for Purchases Annual Fee Minimum Credit Score
0% for the first 15 months (then 17.24% to 25.99% variable)
17.24% to 25.99% variable
$0
670
0% intro APR for 15 months from account opening on purchases and balance transfers.
0% for the first 15 months (then 17.24% to 25.99% variable)
17.24% to 25.99% variable
$0
670
0% intro APR for 15 months from account opening on purchases and balance transfers.
0% for the first 15 months (then 15.24% to 26.24% variable)
15.24% to 26.24% variable
$0
680
Earn a $150 bonus statement credit after you spend $1,000 on purchases in the first 3 months. Rates & Fees
0% for the first 12 months (then 15.24% to 26.24% variable)
15.24% to 26.24% variable
$95
680
Earn $200 bonus cash back after you spend $1,000 on purchases in the first 3 months. Rates & Fees
0% for the first 15 months (then 15.24% to 26.24% variable)
15.24% to 26.24% variable
$0
680
Earn a $150 statement credit after you spend $1,000 or more in purchases with your new card within the first 3 months of card membership. Rates & Fees
0% for the first 15 billing cycles (then 14.24% variable)
14.24% variable
$0
670
A low, variable APR on purchases, balance transfers and cash advances.
0% for the first 15 months (then 15.24%, 19.24% or 25.24% variable)
15.24%, 19.24% or 25.24% variable
$0
670
Earn unlimited 1.5% cash rewards on purchases. See Rates and Fees.
0% for the first 18 months (then 13.24%, 17.24% or 21.24% variable)
13.24%, 17.24% or 21.24% variable
$0
670
A 18 months 0%% intro APR period on both purchases and balance transfers, plus zero foreign transaction fees, makes this is a strong well-rounded card. See Rates and Fees
0% for the first 15 billing cycles (then 17.24% variable)
17.24% variable
$195
700
Enjoy unique excursions, privileged access to exclusive events and insider opportunities.
0% for the first 15 billing cycles (then 17.24% variable)
17.24% variable
$495
700
Receive an annual $100 air travel credit toward flight-related purchases including airline tickets, baggage fees, upgrades and more.
0% for the first 15 billing cycles (then 17.24% variable)
17.24% variable
$995
740
Earn 1x points when redeemed for airfare through the Luxury rewards program.
1.99% for the first 6 monthly billing cycles (then 16.24% to 22.24% variable)
16.24% to 22.24% variable
$0
670
1% cash back to the nonprofits, K-12 schools, colleges and religious organizations of your choice.
9.95% for the first 6 months (then 17.99% fixed)
17.99% fixed
$39
300
Borrow up to $10,000 and get your credit score back on track.
0% for the first 12 statement closing dates (then 15.49% to 25.49% variable)
15.49% to 25.49% variable
$0
720
Earn more cash back for the things you buy most.
NASA Federal Platinum Advantage Rewards Credit Card
NASA Federal Platinum Advantage Rewards Credit Card
7.9% for the first 90 days (then 12.15% to 17.99% variable)
12.15% to 17.99% variable
$0
670
Enjoy perks and save money while gaining points with every purchase.
10.99% for the first 6 months (then 25.24% variable)
25.24% variable
$0
580
2% cashback at restaurants or gas stations on up to $1,000 in combined purchases each quarter. Plus 1% cash back on all other credit card purchases.

N/A

20.99% variable
$25
300
Establish credit history - with responsible use you may be upgraded to an unsecured credit card.

N/A

22.49% variable
$39
300
Helps establish, strengthen and even rebuild your credit.

N/A

21.24% variable
$29
300
Get worldwide purchasing power and flexibility as you work to build or re-establish your credit history.

N/A

26.99% variable
$0
300
Take control and build your credit with responsible use.
Aspire Platinum Mastercard®
Aspire Platinum Mastercard®
0% for the first 6 billing cycles (then 8.9% to 18% variable)
8.9% to 18% variable
$0
580
Enjoy a 0% introductory APR on purchases and balance transfers for the first 6 months.

Compare up to 4 providers

Consolidating debt with good credit

Having a solid credit score can open the doors to more favorable rates and terms when you’re comparing consolidation options. If your goal is to have one monthly payment, shop around for a 0% balance transfer credit card or a low-interest debt consolidation loan.

Another option is to take out a home equity line of credit, though you should consider the risks and weigh all options before tapping into your home’s equity.

Consolidating debt with bad credit

Debt consolidation with bad credit is tricky — but not impossible. You might have to go off the beaten path to find an option that helps more than it hurts.

Getting a debt consolidation loan with bad credit

A few of your options are:

  • Peer-to-peer lenders. True, these lending services do have credit score cutoffs, but they tend to be lower than what you’ll find at a bank.
  • Credit unions. As nonprofit financial institutions, credit unions also have lower credit requirements than for-profit lenders.
  • Secured loans. Get more favorable terms on your debt consolidation loan by putting up collateral.
  • Applying with a cosigner. Having a friend or relative with good credit back your loan makes you less of a risk to lenders and could get you a better deal. Learn about which lenders accept cosigners on personal loans by reading our guide.
  • Credit counseling. Some nonprofits designed to help people get out of debt offer counseling. They can even negotiate with lenders — though you might have to pay them a fee.

I’ve paid off my debts. When will my credit score update?

Once you’ve paid off your debts, it can take anywhere from one to two months for the credit bureaus to update your scores. Though paying off debt will likely result in a score improvement, keep in mind that your credit history and past debts will not be erased and may still show up on your report for up to seven years.

Bottom line

Consolidating your debts into one monthly payment can be an attractive option, but it’s important to understand the resulting positive and negative impacts to your credit score.

Before making any moves, compare your debt consolidation options. And if your debt gets too much to handle, you can always look into a debt relief company.

Picture: Shutterstock

Kelly Larson

Kelly Larson is a writer and editor at finder, where he currently spearheads the effort to make office sloths a thing. Prior to that all-important role, he led editorial newsrooms in the creation of award-winning content as a managing editor in the digital space.

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