We discuss the impact of debt consolidation on credit scores.
Can debt consolidation affect your credit score?
Looking into debt consolidation? We consider the impact it could have on your credit score.
Consolidating your debt can help you manage multiple repayments. Instead of juggling a handful of different accounts, you’ll only need to focus on repaying your debt consolidation loan.
If you’re wondering how a debt consolidation loan could affect your credit score, our guide explains everything you need to know.
What will a debt consolidation loan look like on my credit report?
A debt consolidation loan will look like any other kind of loan on your credit report. Lenders looking at your credit report will see you’ve opened up a loan account with your chosen lender and they can track your repayments.
As you’ve used the loan to consolidate debt, lenders will also see that you’ve paid off your other loans or credit cards. If you close these accounts once they’re repaid, lenders will see these accounts marked as closed. Any missed repayments will remain on your credit report for up to six years, even after you’ve closed the account.
Having a debt consolidation loan on your credit report won’t look different to any other kind of loan. As long as you make your repayments on time, it won’t negatively affect your credit or make lenders worry about your eligibility.
Will taking out a debt consolidation loan hurt my credit score?
Taking out a debt consolidation loan won’t affect your credit score any more than other types of finance. It’s all about how you handle the repayments since taking out the loan.
Like any kind of finance, making an application will cause your credit score to temporarily drop. When you apply for any finance, lenders need to access your credit file to check your eligibility. This is called a hard inquiry – too many of these can hurt your credit score. As long as you don’t repeatedly apply for more credit after your debt consolidation loan, your credit score should bounce back relatively quickly.
If your credit score is poor and you’ve taken out a debt consolidation loan, it’s really important to keep up with the repayments. You could risk damaging your credit score further by missing a payment.
Can a debt consolidation loan improve my credit score?
Taking out a debt consolidation loan won’t directly improve your credit score. However, the way you manage your debt consolidation loan can help boost your score and improve your eligibility for finance in the future.
Many people choose to take out a debt consolidation loan if they’re struggling to manage their current repayments. If that’s the case, your credit score might be less than perfect as a result.
Whether it’s a lower interest rate or a longer term, debt consolidation loans often help you repay your debts with lower monthly repayments. More affordable repayments could help you stay on top of your finances – which could then help you improve your credit score.
A debt consolidation loan may also slowly improve your credit score if you consistently make your repayments on time and in full. Lenders like to see how you manage an account over a long period of time – so a debt consolidation loan could help you prove you can handle a long-term commitment.
It all depends on your circumstances
The way debt consolidation will affect your credit score all depends on your individual circumstances.
If you already have a bad credit score, a debt consolidation loan could help you turn your finances around. As it could lower your monthly repayments, you could avoid missing any more repayments and start to improve your score.
On the other hand, if you miss repayments towards your debt consolidation loan, it could make a bad credit score worse. Only ever consider taking out a debt consolidation loan if you’re completely sure you can manage the repayments.
Debt consolidation loans for bad credit
At Evolution Money, we’re committed to finding loans that actually help you. If you’re looking to repair a bad credit score, a debt consolidation loan could help turn your situation around.
We’ll work around your circumstances to find a loan that suits you, no matter what your credit score. Simply fill out our fast and simple application form and our friendly advisors will get back to you right away.
For a typical loan of £30,000.00 over 120 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £598.34.
Including a Product Fee of £2,400.00 (8% of the loan amount) and a Lending Fee of £807.00, the total amount repayable is £71,800.20.
Annual Interest Rates ranging from 11.88% to 29.38% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
