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How Does Debt Consolidation Affect Your Credit Score?

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Instead of closing old credit cards after consolidating debt, cut them up. That way they're still contributing to your overall available credit.


How Can Debt Consolidation Hurt My Credit Score?

While there's a definite upside to the ease of a single payment and the temptation of a lower interest rate, consolidation can hurt your credit score in a few ways. But some simple strategies can help minimize the impact.

  • Increased credit utilization: If you use a new loan or credit card to consolidate and then close the credit lines you've rolled into the new debt, you could decrease your available credit and thereby increase your credit utilization. A better choice: Instead of closing credit cards, cut up those that you've moved your debt out of. That way, you won't be tempted to use them, but they're still in your name and contributing to your overall available credit.
  • Lower age of credit: New accounts can lower the average age of your credit accounts. Credit history length accounts for roughly 15% of your overall credit score. This is another reason why keeping unused credit card accounts open after consolidation is so important.


Be Aware of Predatory Consolidation Offers

Be cautious of companies that charge a monthly fee to "manage" your debt and negotiate with your creditors. Any service that a so-called debt consolidation company can offer you (lowering your payments or negotiating a payoff) is also accessible directly by you. All you have to do is reach out to your creditors and start the conversation. While it might take a bit of back and forth, you might find you can get a lower interest rate or even an attractive balance transfer offer just by calling.

Debt consolidation can help you achieve a lower monthly payment and a lower interest rate for all your existing debt. And you don't have to pay a fee to anyone to help you do this.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Jim Akin, "What Affects Your Credit Scores?" Experian, updated July 29, 2023. Accessed April 23, 2024. Back
  2. Louis DeNicola, "How Do You Check Your Credit Score?" Experian, updated July 9, 2023. Accessed April 23, 2024. Back