How Debt Consolidation Affects Your Credit Score

By Jason Ramin

It goes without saying that credit scores are pretty important. With a good credit score, you can qualify for larger loans charged at lower interest rates. With a bad credit score, you’ll likely have a hard time qualifying for any type of loan—let alone a good one—and you’ll be charged higher levels of interest.

Because maintaining a decent credit score is important, it’s equally important to understand how credit scores can be affected by your financial choices.

Your credit score hinges on a variety of little financial choices and big financial choices. Take a look at how debt consolidation specifically can influence your credit score and more.

What is Debt Consolidation?

Debt consolidation is a useful tool that can help you manage multiple bill payments easily. If you feel overwhelmed with the number of credit card bills you need to pay, you can take out a debt consolidation loan which will combine all your credit card bills into one new monthly payment.

Choosing to consolidate your debt also comes with some pros and cons of which you should be aware.

Debt Consolidation and Credit Scores: Pros

Check out some of the great benefits that can help your credit score when you choose to consolidate your debt.

Lowered Payments

For the most part, when you take out a debt consolidation loan, your overall monthly payment will be lower. This is a great way to learn to make steady, consistent payments, which will benefit your credit score immensely over time.

One Payment

If juggling multiple credit card bills has led a few to slip through the cracks, that’s not going to help your credit score. With the one payment that you get with debt consolidation, you’ll only need to keep track of one payment due date, making it easier to get your bills paid on time, thus improving your credit score.

Lowered Interest Rates

The more interest you accrue, the longer it will take you to pay off debt and the more your credit score will suffer for it. Debt consolidation is actually designed to lower interest rates. With one monthly lowered payment overall, you’ll be in a better position to pay your bills entirely instead of making just the minimum payment—which allows interest to rack up.

Time to Catch Your Breath

Debt consolidation is a great way to help people struggling under heavy or extensive credit card debt that seems impossible for them to ever catch up. Credit scores suffer when you can’t make your payments on time and in full. When you consolidate your debt, you’re giving yourself time to catch up and improve your credit score by making regular payments.

Debt Consolidation and Credit Scores: Cons

Does debt consolidation hurt credit? Yes, it can. While the pros for building good credit are real, there are a few cons associated with debt consolidation and credit scores to keep in mind.

Doesn’t Change Habits

Many people choose to consolidate their debt when bills and credit card expenses have gotten out of hand. Debt consolidation is a great way to fix that situation, but if you don’t change your spending habits and start managing your money better, there’s a chance that your levels of debt and your credit score won’t improve for the better.

More Interest Long-Term

There are different types of debt consolidation. While consolidating does lower your interest rates, it’s common for those interest rates to be quite long term, meaning you’ll be paying it for years to come. This makes it hard to keep up a decent credit score, but as long as you continue to make your payments on time and in full, you’ll be OK.

Chance to Run Up Debt

When someone has run up a lot of debt that requires discipline and forethought to manage and pay off, they learn valuable lessons about control. Debt consolidation can erase that stress and worry and discipline because it easily enables people to live above their means (one simple monthly payment, etc.). Falling into this trap will cause them to rack up more debt and damage their credit score.

Debt Consolidation Options with

Not sure what options are out there? Submit a loan request through to see if you can be connected with a lender that can work for you.