Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.If you’re having trouble paying bills or want to get out of debt faster, debt consolidation could be a solution. But before you move forward with this debt relief method, it’s important to understand what it does to your credit, how the process works and your other options.
However, it’s also important to be aware of how debt consolidation could cause changes to your credit score. Take care to manage your credit score while paying off debt.Debt consolidation could have an impact on your credit score, both good and bad. Below are five ways debt consolidation could affect your credit score positively or negatively.Every time you formally apply for credit, the creditor makes a hard inquiry, also known as pulling your credit, to check your creditworthiness.
If your credit utilization ratio moves higher after debt consolidation, it could negatively impact your credit score. Using the example above, if you transfer the balance of $4,500 from your existing credit card with a limit of $15,000 to a new credit card with a credit limit of $7,500, your credit utilization ratio on that new card will be 60%, potentially causing a hit to your credit score.
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