Debt consolidation loans roll all of your separate existing debts into one single monthly payment.<\/p>\n\n\n\n
You are almost certainly worrying first and foremost about what it will do to your credit score if you are considering one in the UK. This is the most common question people have, and also the one most sites get wrong.<\/p>\n\n\n\n
You can also get debt consolidation loans with a soft credit check<\/a>. This will not impact your credit score. However, during the process, it might reduce a few points. Even if there is a drop, you must know that a small and short-term drop in your score is completely normal and unavoidable.<\/p>\n\n\n\n Every single debt consolidation will lower your credit score at the very start. The very first thing that happens is a hard credit check, which causes an almost universal temporary drop of between 5 and 10 points. This is the same no matter how much you earn or how good your existing payment history is.<\/p>\n\n\n\n The second impact<\/a> comes from the new account itself, which immediately lowers the average age of all accounts on your credit file. This is the part that almost no comparison site mentions, and it accounts for roughly half of that initial drop. Each one will add 3 to 5 points to that drop if you submit multiple full applications across a 30-day window.<\/p>\n\n\n\n This effect will show up identically on Experian, Equifax and TransUnion, and the full initial impact will last for between 3 and 6 months.<\/p>\n\n\n\n You can limit this initial impact considerably if you get a loan from a direct lender with no guarantor<\/a>. <\/strong>This only runs a soft search until you confirm you want to proceed with a full application.<\/p>\n\n\n\n This is the single biggest factor that makes up your credit score. This accounts for just over a third of your total number. It is also where almost all of the long-term benefits of consolidation come from.<\/p>\n\n\n\n When you pay all of those off with a consolidation loan, that utilisation drops to near zero overnight. This single change will improve your score<\/a>. The general rule is that any utilisation under 30% will help your score. Or even under 10% will give you the maximum possible benefit.<\/p>\n\n\n\n The big mistake almost half of all people make is closing their old credit cards after paying them off. This removes all that available credit from your utilisation calculation. This can erase every single benefit of consolidation in one day.<\/p>\n\n\n\n You can cut up the cards, you can put them in a drawer, but you should never close the accounts. Leaving them open and unused is the single best thing you can do for your credit score long term. This entire update will show up on your report within one full billing cycle.<\/p>\n\n\n\n The type of credit you take will change both the size of the initial drop and the size of the long-term gain.<\/p>\n\n\n\n A personal loan is classed as instalment credit, which credit reference agencies treat very differently from revolving credit like credit cards. You will see the standard 5\u201310-point initial drop, and then a small, consistent gain for every single on-time payment you make.<\/p>\n\n\n\n Balance transfer cards are revolving credit, the same as the cards you are paying off. You will usually see a much larger initial drop, because the new card will open at almost 100% utilisation. They require a credit score of 700 or above to get the best 0% intro rates.<\/p>\n\n\n\n Homeowner loans are secured against your property. They come with much lower interest rates, and you can borrow much larger amounts, but they have the same impact on your credit score as an unsecured personal loan.<\/p>\n\n\n\n\n\n The changes happen in very predictable stages, and almost no one tells you exactly when to expect each one.<\/p>\n\n\n\n The only change in the first two weeks is the hard search appearing on all three of your credit files. This is when you will see the initial 5\u201310-point drop. You will not see any positive impact at all at this stage.<\/p>\n\n\n\n All of your old debts will be marked as settled on your file around 4 to 6 weeks after you take out the loan. This is when your utilisation ratio updates. This is the point where most people see their score jump back up, and usually go past the number it was at before you applied.<\/p>\n\n\n\n At 6 months, the hard search stops having any impact on your score at all. It still shows on your file, but lenders no longer count it against you. Every on-time payment you make from this point will add a consistent boost to your score every single month.<\/p>\n\n\n\n After 12 months, the hard search falls off your credit file, and there will be no remaining evidence. The new loan will now be helping your average account age, rather than hurting it. At this point, if you have made all payments on time, consolidation will ensure the strongest possible credit profiles.<\/p>\n\n\n\n<\/a>How do Debt Consolidation Loans Affect Your Credit Score Initially?<\/h2>\n\n\n\n
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<\/a>How Consolidation Changes Your Credit Utilisation?<\/h2>\n\n\n\n
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<\/a>How do Different Types of Debt Consolidation Affect Your Score?<\/h2>\n\n\n\n
<\/a>Personal Loans<\/h3>\n\n\n\n
<\/a>Balance Transfer Cards<\/h3>\n\n\n\n
<\/a>Homeowner Loans<\/h3>\n\n\n\n
<\/a>Timeline: When Will You See Score Changes?<\/h2>\n\n\n\n
<\/a>Week 1 – 2<\/h3>\n\n\n\n
<\/a>Month 1 – 3<\/h3>\n\n\n\n
<\/a>Month 6 – 12<\/h3>\n\n\n\n
<\/a>Year 2 +<\/h3>\n\n\n\n