Can debt consolidation hurt your credit?

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Debt consolidation can cause a slight dip in your credit score due to a hard credit check. Closing old accounts might increase your credit utilization ratio, impacting your score negatively. However, replacing high-interest debts with an installment loan and keeping up with payments can boost your credit over time. Reach out via phone, text, or live chat if you have any questions.

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Debt Consolidation Hurt Your Credit Question

Can debt consolidation hurt your credit? I’m considering consolidating my debt but worried it could lower my credit score. I want to know if that’s true.

From: Anonymous Question
Location: Brampton, Ontario (ON)
Category: debt consolidation

Debt Consolidation Hurt Your Credit Answer

Debt consolidation might give your credit score a bit of a ding at first because of the hard credit check, but don’t worry—this drop is usually minor and doesn’t last long. If you decide to close old credit accounts after moving balances, it might make your credit utilization ratio look a bit high, which isn’t great for your score. And let’s be honest, if you slack on payments with the new loan, it could make things worse. But here’s the silver lining: if you swap those heavy-duty revolving debts for an installment loan, things might look up. Plus, staying on top of payments? That’s like a big thumbs up for your credit report!

From: Insider Scott

Office of the Superintendent of Bankruptcy (OSB) Answer

Yes, debt consolidation can hurt your credit score initially. When you consolidate debt, you may apply for a new loan, which can result in a hard inquiry on your credit report, possibly lowering your score. Additionally, if you consolidate by settling debts for less than owed, the accounts could be marked as settled, which may negatively affect your credit history. However, if done wisely by reducing overall debt and making timely payments, it could eventually improve your credit score. Refer to the Consumer Protection Act, Section 176, for more insights on credit impacts associated with different debt management strategies.

From: OSB Helper

Related Questions to Debt Consolidation Hurt Your Credit

Here are the top 5 most frequently asked questions related to the impact of debt consolidation on credit, based on the provided sources and general online trends:

1. How does debt consolidation affect my credit score?

Debt consolidation can temporarily lower your credit score due to hard inquiries and new credit accounts, but consistent payments can improve it over time.

2. Will debt consolidation reduce my credit utilization ratio?

Yes, debt consolidation can reduce your credit utilization ratio if you consolidate credit card debt into a personal loan or line of credit.

3. Can debt consolidation close my old credit accounts and affect my credit history?

Yes, closing old credit accounts as part of debt consolidation can shorten your credit history and potentially increase your credit utilization ratio.

4. How long does a debt consolidation program stay on my credit history?

A debt consolidation program can result in an R7 rating on your credit history for the duration of the program plus two years.

5. Can I still get a mortgage after using a debt consolidation program?

A debt consolidation program may make it more difficult to qualify for a new mortgage, especially if an R7 rating is applied to your credit history, but it is not impossible[3][5].

If you have a question about debt see our debt questions or ask your own debt related question.

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