Do consolidation loans hurt your credit?
consolidation loans and credit, consolidation loans hurting your credit, Ontario
Consolidation loans in Canada can slightly lower your credit score initially, due to a hard credit pull and the account’s newness affecting your credit age. The good news? Consolidation helps with better credit utilization and manageable payments, providing a credit boost if you pay on time and avoid new debts. Reach out via phone, text, or live chat if you have any questions.

Consolidation loans can impact your credit score initially.
Consolidation Loans And Credit Question
Do consolidation loans hurt your credit?
I’m thinking about a consolidation loan to manage my debts
From: Anonymous Question
Location: Burlington, Ontario (ON)
Category: debt consolidation
Consolidation Loans And Credit Answer
Consolidation loans in Canada are a bit of a mixed bag for your credit score. When you first apply for one, you might see a small dip in your score. This happens because lenders do a hard pull on your credit report, which basically just means they’re checking you out for new credit. Plus, when you open a new account, it can lower the average age of your credit history, which might nudge your score down a bit more. But there’s a silver lining: by rolling your high-interest debts into a single, lower-interest loan, you can boost your credit utilization ratio and make your monthly payments easier to manage. Just remember, sticking to those payments on time is key, because your payment history is a biggie in determining your credit score. Keep in mind that missing payments or piling on new debts after you’ve consolidated can throw a wrench in your credit repair efforts. So, keep an eye on those old accounts and stay on top of your payments to give your credit profile a nice lift.
From: Insider Adam
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Office of the Superintendent of Bankruptcy (OSB) Answer
Consolidation loans can impact your credit score, though the extent varies based on how you manage the loan. When you apply for a new loan, a hard inquiry may occur, which can temporarily lower your credit score. Additionally, if you consolidate existing debts, it can change your credit utilization ratio, potentially affecting your score positively or negatively. However, effectively managing a consolidation loan by making on-time payments can ultimately improve your credit over time. For specific details on the implications of debt management solutions, refer to the Bankruptcy and Insolvency Act, particularly sections relevant to debt management and treatment of credit.
From: OSB Helper
Related Questions to Consolidation Loans Hurting Your Credit
Here are the top 5 most frequently asked questions related to the impact of consolidation loans on credit scores, based on current trends and concerns:
1. How does applying for a debt consolidation loan affect my credit score?
- Applying for a debt consolidation loan can cause a temporary drop in your credit score due to hard inquiries.
2. Will debt consolidation hurt my credit score if I miss payments?
- Yes, missed or late payments on a consolidation loan can significantly damage your credit score.
3. Does closing credit card accounts after debt consolidation hurt my credit score?
- Yes, closing credit card accounts can negatively impact your credit score by reducing available credit and potentially shortening your credit history.
4. Can making regular payments on a debt consolidation loan improve my credit score?
- Yes, making regular, on-time payments on your consolidation loan can positively impact your credit score over time.
5. How long does it take for my credit score to recover after taking out a debt consolidation loan?
- The recovery time varies, but generally, consistent on-time payments and good credit habits can help your credit score recover and improve over several months to a few years.
If you have a question about debt see our debt questions or ask your own debt related question.
References
Title, Source |
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Impact of Debt Consolidation on Credit, Equifax |
How Credit Scores Work, Credit Karma |
Debt Management Options, Canadian Bankers Association |
Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3), Government of Canada |
Table of article references
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