Debt consolidation involves combining multiple debts into a single loan or payment to simplify repayments. It doesn’t inherently hurt your credit, and in some cases, it might even improve it. However, the impact on your credit score depends on various factors.

Here’s how debt consolidation can affect your credit:

Credit Inquiry: When you apply for a debt consolidation loan, the lender will perform a hard inquiry on your credit report. This may cause a minor and temporary decrease in your credit score.

New Credit Account: Opening a new credit account as part of the consolidation process can initially have a small negative impact. However, having a more structured repayment plan can positively influence your credit over time. lainojen-yhdistä

Credit Utilization: If you use a debt consolidation loan to pay off credit card balances, your credit utilization ratio may improve. A lower credit utilization is generally good for your credit score.

Timely Payments: Making timely payments on your consolidation loan is crucial. Consistently paying on time can have a positive impact on your credit score.

Closed Accounts: If you close the credit accounts that you’ve paid off through consolidation, it might reduce the total available credit, potentially impacting your credit utilization ratio.

While debt consolidation itself doesn’t hurt credit, it’s essential to manage the new loan responsibly. Ensure you make payments on time and avoid accumulating additional debt. If done wisely, debt consolidation can be a useful tool for improving your financial situation and, indirectly, your credit score.