Does Debt Consolidation Hurt Your Credit?

Short answer: yes, a little, at first — and then it usually helps. Here's exactly what happens to your score, and when.

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What drops your score (the first 30–60 days)

1. The hard inquiry — applying for a consolidation loan or balance transfer card pulls your credit. Expect a 5–10 point dip. Gone in ~12 months.

2. A new account lowers your average age of accounts — another 5–10 points temporarily.

3. If you close the old cards after consolidating, your credit utilization ratio jumps because your total available credit drops. This is the biggest avoidable hit — often 20–40 points. Don't close them.

Total realistic dip: 10–40 points for 1–3 months.

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What raises your score (months 2–6)

1. Utilization drops fast. Paying off $15K of credit cards with a loan moves those balances to $0. Since cards count toward utilization and installment loans don't, your ratio can fall from 80% → 10% almost overnight. That's the single biggest factor in your FICO score — often +40 to +80 points.

2. On-time payments stack up. One fixed payment is easier to never miss than five. Payment history = 35% of your score.

3. Mix of credit improves. Adding an installment loan to a card-only profile is a small positive.

Net result after 6 months for most people: +20 to +60 points higher than where you started.

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When consolidation actually hurts long-term

• You close the old cards → utilization tanks, age of accounts shrinks.
• You run the cards back up after consolidating (the #1 reason people end up worse off).
• You miss a payment on the new loan — payment history damage is brutal and lasts 7 years.
• You use debt settlement instead of consolidation. Settlement will tank your score 100+ points. That's a different product — don't confuse the two.

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The 90-day rule

If you consolidate and:

• Keep the old cards open with $0 balance
• Make every payment on time
• Don't add new debt

Your score will almost always be higher in 90 days than it was the day you applied. The temporary dip is the price of admission for a much bigger long-term gain.

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Bottom line

Debt consolidation is one of the only "credit hits" that pays you back. The 10-point dip is real. The 60-point recovery is bigger.

See what you'd qualify for — no hard pull →

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This article is for educational purposes only and does not constitute legal or financial advice. Lighten Debt is not a law firm. Results vary by individual.