How Long Does a Debt Consolidation Stay on Your Credit Report

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Oct 14, 2024

How Long Does a Debt Consolidation Stay on Your Credit Report

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First things first, what is debt consolidation? Well, the answer is simple: debt consolidation is when you take out a single loan or credit card to pay off multiple debts. So, if you want to learn more about debt consolidation, how it works, and how long it stays on your credit report, you’ve come to the right place!

In this article

How does debt consolidation work?

Debt consolidation combines all of your debts into one payment. The main benefits of this include lower interest rates and lower monthly payments. This means that instead of paying several smaller sums at different interest rates, you combine them into one bigger payment.

Furthermore, debt consolidation can help you pay your debts faster, thus also helping you improve your credit score. Even so, it is up to you to decide if this is the way to go for you.

How long does a debt consolidation stay on your credit report?

Debt consolidation won’t show up on your credit report, but any new credit cards or loans you take out will. However, you can open multiple types of accounts for debt consolidation, and depending on which you choose, the time it stays on your credit report may vary. We’ll now look into which accounts can be opened for debt consolidation and how long they will appear on your credit reports.

Balance transfer credit card

A balance transfer credit card is a card that comes with a promotion, and that promotion is a 0% annual percentage rate, allowing you to pay balances interest-free for 12–24 months.

As long as you keep this type of card open, it will remain on your credit reports. But, if you consistently pay on time and close it in good standing, it will stay on your credit reports for the next 10 years. If, however, you miss a payment by a month or more, that information will remain on your credit reports for seven years, starting with the date you missed your payment.

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A personal loan

Taking out a personal loan is a popular way to consolidate your debts. So, how can a personal loan help, and how long will it show up on your credit reports?

First, you need to decide what personal loan to get. Once that decision is made, you can use that loan to pay off your debts. Keep in mind that personal loans do not have a 0% annual percentage rate. However, they do have a fixed repayment plan that might help you if you sometimes need help organizing and sticking to your payment plans.

While there is no way to keep a personal loan open indefinitely, the same rules as the balance credit card apply otherwise. If the payments are made on time, the positive information will stay on the credit report for 10 years, and if you miss a payment, that negative information will remain on your credit report for seven years from the date of the missed payment.

401k loan

You can always dip into your 401k to pay off your debts, though you stand to lose on your accumulating interest by doing so. If you take from your 401k, it won’t require any credit checks because you are basically borrowing money from yourself, and this loan won’t show up on your credit report because of that.

Home equity loan

If you are a homeowner, you can take out a home equity loan. However, this is risky since you may get your home foreclosed on if you miss payments. Home equity loans work similarly to personal loans in terms of how long they will show up in your credit reports — 10 years if all payments are made on time and seven years if not.

Home equity line of credit (HELOC)

HELOC is a credit line that can be used to pay for large expenses or debt consolidation. These often have lower interest rates than some other types of loans, and whatever interest they have may be tax deductible.

HELOCs work similarly to credit cards, and like them and personal and home equity loans, the rules for positive and negative information on your credit score are the same (10 years for good, seven for bad).

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Debt consolidation and credit scores

Now that you know all about the types of loans you can take out to consolidate your debt let's talk about whether debt consolidation is suitable for you and how your credit scores affect everything.

A credit score of 740 or higher means that you will almost certainly get a loan for debt consolidation. If your credit score ranges from 739 to 670, you are also very likely to get this loan. Also, any interest rates on loans at this level of credit score — especially 740 and above — will be very low and favorable for you.

That said, any credit score lower than that will bring a lot of challenges for you. Debt consolidation on a low credit score is not really a good idea. Even if you get approved for a loan, the interest rates will be super high and not worth it when you are trying to get more savings by consolidating your debts.

Whatever your credit score, you have to consider that debt consolidation is just another loan that adds to everything. It will most definitely affect your credit score, and no matter how on time you are with your payments, the loan you choose will be going on your credit reports for the next 7–10 years.

You also need to weigh the pros and cons when it comes to debt consolidation and see if any alternatives would work better for you — like debt management plans, credit card refinancing, or bankruptcy.

Whatever you choose, make sure that it is the right one because a good plan to deal with your debts will make your credit reports look good and raise your credit score, and a bad one will spell disaster.

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