Does consolidating debt affect credit score

While there is no one-size-fits-all answer to how debt consolidation will affect a person's credit, there are some general rules of thumb you can use to get an idea of how your credit score will be affected.Your FICO credit score is calculated using the information on your credit report and a proprietary formula.You'll also want to avoid running up a balance on your freshly paid-off cards.If you can't pay off the balances in full, your credit utilization ratio may creep up again and hurt your score.Unfortunately, consolidating your debt won’t always result in a higher credit score.In fact, consolidating debt could result in a lower credit score in some cases.The type of debt consolidation you choose and the habits you keep afterward will determine what happens to your credit score." data-reactid="25"Debt consolidation can help you get out of overwhelming debt, but it may affect your credit score in surprising ways.The type of debt consolidation you choose and the habits you keep afterward will determine what happens to your credit score.personal loan or a balance transfer credit card to pay off your existing debts.

You use the proceeds of either a personal loan or a balance transfer credit card to pay off your existing debts.Taking out new credit, even if it's used to consolidate debt, usually results in a small decrease in your credit score due to the hard inquiry required to obtain the credit.Thankfully, "new credit" is one of the smallest portions of the credit score formula.While aiming for a high credit score is a worthy goal, sometimes a lower credit score in the short term as a result of consolidating debt may be worth the sacrifice to save money on interest payments and pay off your debt faster.That said, even if you can achieve your goal, you may want to hold off on consolidating your debt in certain situations.

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