These plans often require closing your credit card accounts, and if the debt management or credit counseling agency negotiates lower settlements on your behalf, those accounts may be reported to the credit bureaus as “not paid as agreed.” That can hurt your credit score.
However, these plans are for people who are already struggling with severe debt, so paying off your debt this way is likely to have a positive long-term effect on your credit that outweighs any short-term damage.
Another common mistake that can take a toll on your credit score is if you pay off on your consolidation loan.
If you close the credit cards you pay off, you reduce your available credit, which could increase your credit utilization ratio (a.k.a.
This way, getting a variety of quotes won’t show up on your credit report and indirectly impact your credit score.
You can find and compare loan offers on Lending Tree — we use a soft credit pull to search for loans that may suit you.
S., how much a hard inquiry hurts a credit score varies from person to person, and such an inquiry is more likely to hurt your credit score if you have few accounts or a minimal credit history.
In other words, research your options in advance to avoid potential credit damage from applying for multiple debt consolidation loans, or ask for loan quotes based on soft credit pulls, as opposed to hard inquiries.
Your debt-to-income ratio (DTI) also comes into play.
It may be to the benefit of your credit score to leave open your credit card accounts, particularly the oldest ones.
Another way your credit could suffer from debt consolidation is if you work with an agency to implement a debt management plan (DMP).
A balance transfer lets you take all your credit card balances and lump them into one new credit card with either a lower ongoing annual percentage rate (APR) or a lower introductory APR for a specific period.
This can ultimately help you get out of debt faster while paying less in the long run.