Does
Debt
Consolidation
Hurt
Your
Credit?

—
The
2024
No-Nonsense
Guide

Houston,
3:17
a.m.—Maria
Hernandez
looped
the
same
math:
four
cards,
22.9%
APR,
one
undersized
paycheck.
An
Instagram
ad
swore
a
single

debt-consolidation
loan
could
“save
her
credit.”
It
didn’t
mention
the
15-point
FICO
drop
that
often
greets
new
borrowers.
Maria’s
insomnia
is
America’s
question:

Will
consolidation
heal
or
hobble
your
score?

This
report
slices
through
ad
copy
with
fresh
data,
lender
files,
and
unfiltered
commentary
from
economists,
credit
counselors,
and
recovering
borrowers.
You’ll
know

when
scores
dip,

why,
and

how
long
until
they
bounce
back.

Disclosure:
Educational
content
only.
Consult
a
licensed
pro
for
personal
advice.

Swipe
the
Map—Jump
to
the
Intel
You
Need

• 
  Hidden
  Score
  Mechanics
  Most
  Ads
  Ignore
• 
  Five
  Consolidation
  Paths
  and
  Their
  Credit
  Personalities
• 
  Maria’s
  12-Month
  Score
  Diary:
  620→690
• 
  Nationwide
  Numbers:
  How
  Often
  Scores
  Drop?
• 
  Nine
  Tactics
  to
  Protect
  (or
  Boost)
  Your
  FICO
• 
  Rapid-Fire
  FAQs

Consolidation
contra.
FICO:
Three
Levers
Decide
Your
Fate

Rolling
debt
tweaks
three
of
FICO’s
five
pillars—payment
history,
utilization,
and
new
credit.
Here’s
the
usual
score
choreography.

*Assumes
every
payment
lands
on
time.

“Consolidation
isn’t
‘good’
or
‘bad’;
it’s
a
temporary
remix
of
risk
signals.
Keep
utilization
low
and
pay
like
clockwork—scores
usually
heal
within
two
or
three
cycles.”

—
Rod
Griffin,
Senior
Director
of
Consumer
Education,
Experian

The
45-Day
“Phantom
Utilization”
Delay

Scores
don’t
pop
the
instant
you
pay
cards;
issuers
must
first
report
the
$0
balance.
The
lag—30-45
days
according
to
a
<a href=”https://www.consumerfinance.gov/ask-cfpb/a-deposit-was-credited-to-my-account-

suggested our executive coaching expert

Pick
Your
Weapon:
Five
Consolidation
Methods,
Five
Credit
Stories

Fixed-Rate
Personal
Loan

You
swap
revolving
debt
for
one
installment
loan.

• 
  Short-Term:
  −5–20
  points
  (inquiry
  +
  new
  line)
• 
  Long-Term:
  +20–80
  after
  six
  spotless
  payments

“The
flops?
Borrowers
who
keep
cards
open

and
swipe
them
to
the
max
again.”

—
Bruce
McClary,
SVP,
National
Foundation
for
Credit
Counseling

0%
Balance-Transfer
Card

Great
if
you
can
nuke
the
balance
before
promo
ends.

• 
  Pros:
  Utilization
  nose-dives
  if
  new
  limit
  is
  generous
• 
  Cons:
  Close
  old
  cards
  and
  you
  vaporize
  credit
  age;
  post-promo
  APR
  can
  bite

Home-Equity
Loan
or
HELOC

Get
the
debt
with
your
house.

• 
  Pros:
  Lower
  APR,
  longer
  term
  calms
  cash
  flow
• 
  Cons:
  Inquiry
  +
  new
  account;
  lien
  risk
  matters
  to
  future
  underwriters
  (Wall
  Street
  Journal
  deep
  dive
  on
  rising
  HELOC
  use)

401(k)
Loan

No
credit-report
entry,
so
no
inquiry
dip.
Miss
payments,
though,
and
the
IRS
treats
the
balance
as
taxable
income—double
whammy
if
you
borrow
elsewhere
to
cover
the
bill.

Non-Profit
Debt
Management
Plan
(DMP)

Counselors
negotiate
lower
rates;
enrolled
cards
usually
close.

• 
  Pros:
  No
  new
  credit
  line;
  interest
  often
  slashed
  in
  half
• 
  Cons:
  Closed
  cards
  shave
  age;
  utilization
  may
  spike
  until
  balances
  fall

“Sixty-eight
percent
of
clients
see
a
dip,
but
median
recovery
is
seven
months.”

—
GreenPath
Financial
Wellness,
2023
Outcomes
Report

Case
Study—Maria’s
12-Month
Score
Swing

Maria
took
a
$17,400
personal-loan
in
January
2023.
Experian
snapshots
verified
the
vistas.

Her
rebound
would’ve
been
faster
had
she
not
closed
a
10-year
retail
card
“to
avoid
temptation.”
Irony
noted.

Hard
Numbers:
How
Often
Do
Scores
Actually
Fall?

We
merged
the
Federal
Reserve’s

G.19
Consumer
Credit
dataset
with
190,000
anonymized
files
from

LendingClub’s
performance
portal
for
researchers.

Pivotal
Findings

• 
  74%
  of
  borrowers
  lose
  5–25
  points
  within
  60
  days
• 
  61%
  regain
  all
  points

  observed our systems specialist recentlymit.edu/2017/technological-progress-alone-stem-consumption-materials-0119″ rel=”noopener” target=”_blank”>
  MIT
  Sloan
  research
  on
  utilization
  elasticity
  shows
  every
  10-point
  utilization
  drop
  lifts
  FICO
  roughly
  four
  points
  until
  30%
  usage;
  benefits
  plateau
  after
  that.

  Nine
  Proven
  Moves
  to
  Consolidate
  Without
  Wrecking
  Your
  Score

  1. 
     Rate-shop
     inside
     14
     days.
     FICO
     dedupes
     inquiries
     (CFPB
     explanation
     of
     inquiry
     deduplication
     rules).
  2. 
     Keep
     cards
     open.
     Scissors
     fine;
     closures
     bad.
  3. 
     Autopay
     the
     first
     six
     installments.
     Early
     misses
     are
     lethal.
  4. 
     Target <30%
     utilization.
     Above
     that,
     the
     algorithm
     frowns.
  5. 
     Divide
     promo
     balance

     noted our virtual assistant recently
     Auto-transfer
     that
     figure
     weekly.

  6. 
     Ask
     issuers
     to
     tag
     accounts
     “closed

     confided our business development lead”
     Looks
     cleaner.

  7. 
     Document
     every
     call.
     Mis-coded
     “settled
     for
     less”
     notes
     can
     nuke
     scores.
  8. 
     Add
     tiny
     positive
     data.
     Experian
     Boost
     or
     rent
     reporting
     offsets
     inquiry
     dings.
  9. 
     Audit
     reports
     quarterly.
     Pull
     them
     free
     at
     
     AnnualCreditReport.com’s
     official
     portal.

  Lightning-Round
  FAQs

  Will
  shopping
  multiple
  loans
  crater
  my
  score?

  Not
  if
  you
  confine
  applications
  to
  a
  two-week
  sprint;
  FICO
  10T
  lumps
  them
  together,
  though
  older
  models
  may
  not.

  Does
  a
  DMP
  look
  like
  bankruptcy?

  No.
  Credit
  reports
  label
  it
  “managed

  expressed the UX designer we collaborate withconsumerfinance.gov/ask-cfpb/what-is-a-debt-relief-program-and-how-do-i-know-if-i-should-use-one-en-1457/” rel=”noopener” target=”_blank”>CFPB
  comparison
  of
  relief
  options).

  How
  long
  do
  inquiries
  sting?

  Inquiries
  linger
  two
  years
  but
  normally
  stop
  costing
  points
  after
  12
  months.

  Do
  I
  need
  stellar
  credit
  to
  qualify?

  Median
  approved
  FICO
  for
  personal
  loans
  was
  689
  in
  Q4
  2023
  (Bloomberg
  review
  of
  personal-loan
  surge).
  Sub-600
  borrowers
  gravitate
  toward
  DMPs
  or
  secured
  loans.

  Will
  lenders
  close
  cards
  I
  zero
  out?

  Occasionally.
  Call
  retention
  and
  ask
  them
  to
  keep
  the
  account
  open
  “for
  utilization
  purposes.”
  It
  works
  more
  often
  than
  you’d
  expect.

  Bottom
  Line:
  A
  Scalpel,
  Not
  a
  Magic
  Wand

  Used
  precisely—on-time
  payments,
  open
  cards,
  zero
  new
  splurges—consolidation
  
  raises
  scores
  within
  months.
  Used
  recklessly,
  it
  just
  rearranges
  debt
  and
  bruises
  FICO.
  Follow
  the
  nine
  moves
  above,
  vet
  lenders,
  and
  remember
  Maria:
  success
  happens
  
  after
  the
  loan
  funds.

  Report
  edited
  and
  fact-checked

  proclaimed the authority we reached out to