Loan Consolidation & Credit Score

No, applying for a loan will not decrease your credit score significantly.

There are two types of credit inquiries. The first, called a "hard pull," is recorded in your credit report. A hard pull occurs when a consumer applies for a loan. The theory behind a hard pull affecting your credit report is that it is a signal to all creditors who have an interest in your account that you are contemplating a new loan. The decrease in a consumer's score for one hard pull is minimal.

The other credit inquiry is called a "soft pull." This occurs when a potential creditor asks one of the credit reporting agencies to give it a list of all consumers that fit a certain set of criteria, such as neighborhood, credit score range, mortgage, and so on. A soft pull will result in no change to a consumer's credit score.

Let us say that you apply for a loan, are successful, and use the loan to retire the debt from a credit card. In this case, the impact on your credit score will be minimal. However, if you retire several credit card debts, then the impact on your credit score may be slightly positive because you demonstrated that you can handle paying off several accounts.

In summary, getting a consolidation loan as a means to boost your credit score is not a winning proposition. Unless the consolidation loan has an interest rate lower than debt you are retiring, then there is no economic reason to get the loan.

See the Bills.com resource Clear My Credit Score to learn more about how certain actions can affect a credit score.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com