Does debt consolidation hurt your credit?

2 min readUpdated By the Instacash team
The short answer

It can dip a little at first. If you pay on time and stop adding to your cards, it usually helps over time.

The dip and the climb

A consolidation loan touches your credit at four moments. Only one of them tends to pull your score down, and it is temporary.

Rate check You accept the loan Cards paid off On-time payments Time
No effectRate checkA soft inquiry. It doesn't affect your score.
Small dipYou acceptA hard inquiry and a new account can lower your score slightly for a while.
Often helpsCards paid offYour card balances drop, so you use less of your available credit.
BuildsEvery paymentEach on-time payment adds to your payment history.
The typical pattern in the months after consolidating. The size and timing of each step vary from one credit file to the next.

What pulls your score down, and what lifts it

Can lower it

  • A hard inquiry when you accept the loan.
  • A new account, which lowers the average age of your accounts.
  • Closing the cards you paid off, which reduces your available credit.
  • A missed payment on the new loan. This does the most damage.

Can raise it

  • Lower card balances. You use a smaller share of your credit limits.
  • On-time payments, month after month.
  • A mix of credit types. An installment loan alongside cards.

The items on the left are mostly one-off and small. The items on the right keep working for as long as you keep paying. That is why the usual shape is a dip followed by a climb.

How to protect your score when you consolidate

  • Check rates with a soft inquiry. Use lenders that prequalify you without a hard credit check, and only proceed with the one you choose.
  • Pay off the cards straight away. When the loan arrives, use it for the balances it was meant for.
  • Leave the cards open, and leave them alone. Open cards with a zero balance help your utilization. New spending on them undoes the point of consolidating.
  • Never miss the loan payment. Set a reminder or automatic payment for a few days before the due date.
See your rate without a hard credit checkChecking uses a soft inquiry. A hard inquiry may be made only if you accept an offer.
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How other options compare

A consolidation loan that you repay on time is one of the gentler options for your credit. Two others are worth knowing about.

  • Debt management plan. Arranged through a nonprofit credit counseling agency. You may have to close the cards in the plan, which can lower your score at first.
  • Debt settlement. Negotiating to pay less than you owe. It typically involves missed payments along the way and harms your credit considerably.

New to the idea altogether? Start with what debt consolidation is.

Common questions

How long does a hard inquiry stay on my credit report?

A hard inquiry stays on your credit report for two years. Its effect on your score is usually small and fades well before then.

Should I close my credit cards after I consolidate?

Closing a card lowers your total available credit, which can push your credit utilization up. If a card has no annual fee and won't tempt you to spend, keeping it open and unused is often the better choice for your score.

Does checking my rate for a consolidation loan hurt my credit?

Not when the lender uses a soft inquiry to show you a rate, as we do. A hard inquiry may be made only if you accept an offer.

Curious what rate you would get?

Find out in about three minutes. Looking won't affect your credit score.

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