Can Credit Card Consolidation Affect Credit Score?

You may already be aware that one of the most effective ways to pay down your credit cards is to consolidate them. But does credit card consolidation affect credit score?

“Paying down your debt isn’t just about becoming debt-free. It is important to pay attention to establishing or repairing your credit history so that when you are debt-free, you can move ahead to achieve other financial goals,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

credit card consolidation affect credit score

In many cases, debt consolidation is a good debt repayment strategy. However, it is important to fully understand your responsibilities and the short-term and long-term implications of your choices. Here is what you need to know about debt consolidation and how will credit card consolidation affect credit score.

Had enough of carrying debt and are ready to pay it down once and for all? Call one of our trained credit counsellors at or check out our free online debt analysis.

Why isn’t my debt going down?

If you’ve got multiple credit cards and are making multiple minimum payments, you may feel like you are spinning your wheels, financially speaking. That’s because, in fact, you kind of are. Your minimum payment is comprised of a combination of principal and interest. Much of the payment goes towards interest, with very little going to reduce the actual principal of your debt.

“Even though you may be using a good chunk of your income to pay down your debt, it is very difficult to gain any traction when you are only making minimums. As your debt continues to accumulate interest, the cost you pay continues to climb. When you find yourself in this situation, you may want to consider consolidating your debt,” says Schwartz.

Why does consolidating my credit cards work?

It’s all about getting your money to work “smarter” for you. Instead of applying small amounts of money to multiple debts, when they are consolidated you apply the whole payment to a single debt. While you still need to pay interest, you pay more towards the overall principal of your debt, which will see it decrease more quickly.

Furthermore, debt consolidation payments tend to be lower than making multiple payments. That means that you’ve got more cash flow to cover your costs. If you’ve been living paycheque to paycheque (or worse, taking money from credit cards to pay other credit cards) you’ll find this a real bonus. Not only can you pay your debt down, you’ll be able to stay debt-free in the future.

To consolidate your credit card, you typically do a DIY balance transfer (where you combine all of your credit cards onto a single card with a lower interest rate) or a debt consolidation loan (which you take out from your financial institution).

Will credit card consolidation affect credit score?

Actually, if you set up a proper consolidation plan and execute on it, you may actually end up helping your credit score.

It can be helpful to understand how your credit score is tabulated, what influences it and what steps you have to take while consolidating your debt to maintain or increase your credit score.

What makes up my credit score?

Let’s review some of the benefits of debt consolidation: your payments are more affordable; you are dealing with a single credit card or installment loan payment and you have the cash flow to make your payments on time. Keeping that in mind, here are the factors that influence your credit score.

Your credit score is a tool that lets lenders assess the risk of lending money to you. They use this to decide if you qualify for credit at all and also to decide what kind of interest rate you are entitled to (i.e. if you have a middle to low credit score, expect to pay higher interest rates because that is the lender’s way of offsetting the perceived risk).

The bulk of your credit score comes from your payment history (about 35 percent). This is because it demonstrates your ability to budget and meet your financial obligations in a timely fashion.
Your total credit balance counts as well. The lenders will look at how much debt l that you have, but also at the ratio of your debt to your credit limits. If you’ve got multiple cards that are at or near their limits, this will lower your credit score.

Again, a lender likes to see how you handle money before they give it to you, which is why the length of your credit history matters. If you don’t have a credit history (there are a number of reasons that this can be) then they don’t have anything to refer to, so you are assigned a lower credit score.

Other factors that influence your credit score, but to a lesser extent, is having multiple different kinds of credit (i.e. installment and open credit) and how many new credit applications you’ve done in a short period of time.

How debt consolidation can help your credit score

By consolidating your debts and rolling them into one, you will be paying your debts down more quickly and affordably. You can help your credit score because you’ll likely be able to make your payments on time. You’ll also have less overall credit compared to your limit and you’ll have paid out maxed out credit cards. If you take out a debt consolidation loan, you will have experience with different kinds of credit, which can help your score.

When you consolidate your debts, it is advisable to close most of your credit cards, simply to avoid getting back into debt or put them away so you don’t use them. In fact, some lenders require this as a condition. Be careful which cards you close though. Try to leave a couple of cards open that you’ve had for an extended period of time to boost the credit history portion of your credit score.

If you are tired of living paycheque to paycheque just to pay your debts, consider what debt relief options you have available. Learn how paying down your debt today can help your credit for tomorrow. Call one of our trained credit counsellors at or visit our free online debt analysis.