Does debt consolidation affect your credit score?
Debt consolidation can move your credit score in both directions. This guide explains the short-term effects of applying, what happens as you repay, and why no one can promise your score will improve.
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Does your credit score drop at first?
Taking out a consolidation loan usually causes a small, temporary dip in your credit score, followed by a gradual recovery if you manage the new loan well. None of this is guaranteed in either direction. Credit scores respond to many factors, and each credit reference agency calculates them in its own way. What this guide can do is explain the mechanisms honestly, so you know what to expect rather than relying on promises.
There is no genuine way to apply for a loan with no effect on your credit file. Be wary of any claim that "checking won't affect your score": a full application involves a hard search that lenders can see.
Hard searches when you apply
When you formally apply for a consolidation loan, the lender records a hard search on your credit file. This is visible to other lenders and can cause a small, short-lived reduction in your score. One or two searches are rarely a problem, but several applications in a short space of time can look like you are desperate for credit, which lenders may read negatively.
Many lenders offer an initial eligibility check that uses a soft search. A soft search is not visible to others and does not affect your score, so it can give you a sense of how likely you are to be accepted. That is only an indication, though, and the full application still involves a hard search. Our page on eligibility explains what lenders tend to look at before you apply.
Opening a new account
A consolidation loan is a new credit account, and two things follow from that. First, a brand-new account lowers the average age of your credit history, which can nudge your score down at first, because lenders tend to favour longer, well-managed track records. Second, the account gives you the chance to build a positive repayment history. With consistent on-time payments, that steady record can help your score recover and, over time, strengthen.
How consolidation changes your credit utilisation
Credit utilisation is the share of your available revolving credit that you are actually using, mainly on credit cards and overdrafts. High utilisation, such as cards sitting near their limits, tends to weigh on your score. When a consolidation loan clears those balances, your card utilisation can fall sharply, which may help. The loan itself is an instalment loan rather than revolving credit, so it is treated differently from a card balance.
There is a catch worth naming. If you clear your cards and then run the balances back up, your utilisation climbs again and you are left with both the loan and the card debt. This is one of the common mistakes to avoid.
Should you close the old accounts?
Once you have consolidated, you may want to close the old accounts, or you might keep some open but unused. Closing accounts can affect your score in subtle ways. It reduces your total available credit, which can push up the utilisation percentage on whatever remains, and closing a long-held account can lower the average age of your history. None of this is necessarily a reason to hang on to accounts you do not want, but it is worth understanding before you shut everything at once.
The long-term picture
Over the longer term, the single biggest influence on your score is whether you make your payments on time. A consolidation loan that you repay reliably, month after month, builds a record of consistent repayment, and that steady history is what tends to support a score over time. Miss payments on the new loan, though, and you will damage your score and risk lasting consequences, as our guide on missing a repayment explains.
No one can promise that consolidation will improve your credit score. Anyone who guarantees a better score is overstating what is possible. The realistic position is a short-term dip, then recovery if, and only if, you keep up the repayments.
How long before your score recovers?
There is no fixed timetable, because recovery depends on your wider credit behaviour rather than the loan alone. As a rough guide, the hard search fades in significance over several months and drops off your file after a couple of years, while a new account counts for less against your history as it ages. Each on-time payment adds to the positive record that pulls your score back up, so the most useful thing you can do is pay on time every month and avoid new applications for a while.
If your credit history is already impaired, your options may be narrower and rates higher. See consolidating debt with bad credit and our page on debt consolidation loans for bad credit for a realistic view.
Frequently asked questions
Will my score drop as soon as I apply?
A hard search and a new account can cause a small, temporary dip. The size of the effect varies between people and credit reference agencies, and it usually recovers if you manage the loan well.
Can consolidation improve my credit score?
It may, over time, if it lowers your card utilisation and you make every payment on time. But improvement is never guaranteed, and it depends on your wider financial behaviour.
Should I close my old accounts afterwards?
It depends. Closing accounts can reduce your available credit and the average age of your history. Keeping one or two older accounts open but unused is sometimes preferred, but avoid keeping accounts you might be tempted to use.
Does checking my own credit file hurt my score?
No. Checking your own file is a soft search and does not affect your score. You are entitled to review your credit report with the main credit reference agencies.
Related pages
Understand the costs before you apply
See how different rates and terms change what you repay. All figures are illustrative examples.