Check your eligibility for debt consolidation loans
- Loans from £1,000 to £2,500,000
- See your quote before you apply
- Quote won’t affect your credit score
When you take out a debt consolidation loan, the initial credit search that the lender makes, plus each repayment on the loan, will be recorded by credit reference agencies (CRAs) in your credit file. There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion. These CRAs are where lenders turn when assessing the risk of lending to you.
Broadly speaking, if you make each payment on time and in full, and you start to reduce your debt, then debt consolidation will benefit your credit score. However, there are a few different ways it can impact how you come across in your credit record – which is more than just a number.
Yes. From the perspective of the CRAs that determine your credit score, a debt consolidation loan is treated like any other type of loan. It can affect your credit score in the same way as, say, car finance, a credit card, a mortgage or a personal loan.
Taking out a debt consolidation loan should help your credit score if used correctly, but it can negatively affect your credit score in the following situations:
Don’t forget that other activities will have a bearing on your credit score at the same time. So while using debt consolidation correctly stands to improve your credit score, if you’re missing payments on your mobile phone contract at the same time, for example, then your score will go down, not up.
There are a couple of ways that debt consolidation can improve your credit score, especially if you’re struggling to repay your current debts:
Even if paying off your debt consolidation loan has a minimal positive impact on your credit score, it’s also worth keeping in mind that it could also prevent the damage you could do to your credit rating by not consolidating your debt.
It’s worth remembering that your actual credit score is just one part of your credit record as a whole, and would-be lenders look at much more than just your score when assessing your circumstances.
For example, you could have a low credit score, but very manageable debts and a healthy income versus your outgoings. By contrast, you could have a high credit score, but be close to the limit of manageable debt.
Debt consolidation is all about reducing your debt as quickly, easily and cheaply as possible. And after that, you’re likely to end up in a stronger position to get a favourable mortgage, and you’ll likely become more appealing to would-be lenders.
While a debt consolidation loan will be visible on your credit record, it’s very unlikely that it will be visible as a “debt consolidation loan”. Instead, your record will show each instalment against the lender’s name. The lender might be called “Debt Consolidation Loans R Us” or it might be obvious that shortly after you took out a large loan, you closed several smaller loans – in which case it would be possible to infer that you’d consolidated debt. However, there’s nothing wrong with consolidating debt. It’s often the smartest choice and many of us will consolidate debts in one way or another in our lifetimes.
Finally, don’t apply for multiple debt consolidation loans in a short space of time because this may suggest to lenders that you’re unable to properly manage your debts.
There’s no definitive credit score you’ll need to get a debt consolidation loan, but you’re likely to need at least a “fair” credit rating to be eligible for an unsecured loan at a reasonable rate.
Borrowers with a low credit score may be able to access larger sums or better rates with a secured debt consolidation loan.
There are various financial products you can use to consolidate debt – from a credit card through to a traditional bank loan or even remortgaging. The best option for you will depend on your situation, but we’ve written an in-depth overview to help you understand your options.
In summary, a debt consolidation loan can improve your credit score via the following steps:
Find out the difference between a credit score and a credit report, plus the factors that can push your score up and down.
The best methods for getting your credit rating in top shape, and boosting your credit score.
Find answers to any questions about your credit score and report.
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