Do consolidation loans hurt your credit? This question is about Debt Consolidation Loan Offers

Do consolidation loans hurt your credit?

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This question is about Debt Consolidation Loan Offers

Rick Bormin, Personal Loans Moderator

@rhandoo2020 • 07/08/21 This answer was first published on 07/08/21. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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Consolidation loans do hurt your credit in the short-term because the lender will do a hard inquiry into your credit when you apply, dropping your credit score by 5 to 10 points, and your total debt may go up. But even though a consolidation loan will hurt your credit at first, it can lead to a much higher score over time.

You can estimate how a debt consolidation loan might hurt or help your credit by using WalletHub's free credit score simulator tool.

How a Debt Consolidation Loan Can Help Your Credit

Ideally, your debt consolidation loan will have a lower interest rate than your original debts, which means interest will accrue less quickly and you will be able to get debt-free sooner. Paying off your debts in full will increase your credit score.

In addition, every month as you make payments on your debt consolidation loan, the lender will report information about the loan to the credit bureaus. If you always pay on time, you should see your credit score steadily increase over the life of the loan. If you miss payments or default on the loan, that would hurt your credit.

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Is debt consolidation a good idea?

Debt consolidation is a good idea for borrowers with high-interest debts owed to multiple lenders. Whether or not debt consolidation is wise depends largely on if you can get a new loan or credit card that will save you money compared to the current cost of your debts. The simplicity of a single payment can be helpful, too.

How Much You Can Save With Debt Consolidation

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How long does debt consolidation stay on your credit report?

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