When You Consolidate Your Bills Does It Go on a Credit Report?

Consolidating bills through a loan involves transferring debt from one source to another. Consolidation plans also may include using a debt consolidation company to negotiate with creditors. Either method is designed to result in fewer payments, lower interest rates and a reduction in overall debt. How bill consolidation affects your credit report depends on the consolidation method used and the type of credit involved.

Credit Scoring Facts

The Fair Isaac Corporation (FICO) uses a range of financial information to calculate your credit score, also called a FICO score. While account types, length of credit history and new credit affect your credit report, your payment history accounts for 35 percent of the credit score formula and overall debt makes up 30 percent of your score. Debt consolidation can affect all these variables, and creditors may report any activity to a credit bureau, including payment plans and balance transfers.

Benefits

Lenders may consider you a higher credit risk if you have high balances on revolving accounts such as credit cards. Paying off high-risk credit cards with a bank or equity consolidation loan may improve your credit score. Consolidating your bills with a lower interest rate loan can help you pay off the same amount of debt faster, resulting in an increase in your score as your debt-to-credit ratio improves. Additionally, having previously delinquent or high-balance accounts reported as "paid in full" will improve your creditworthiness with potential lenders.

Disadvantages

If you use a debt management company to consolidate debt or negotiate with lenders, the management company may instruct you to stop paying bills until your creditors are more willing to accept a payment deal. However, delinquencies and late charges end up on your credit report even if creditors eventually are willing to negotiate. Additionally, if an outside consolidation agency is used, lenders may place a note on your credit report stating the account was "settled" instead of paid in full or that a debt management plan was used.

Considerations

Debt-to-credit ratios, the average age of open accounts and having a mix of credit types impact credit scoring. Unless there is a risk of running up balances on recently consolidated credit accounts, consider leaving a few credit cards or other revolving lines of credit open. While having too many lines of credit open may hurt your credit score, closing all or most of them may damage it as well. Closing an account reduces the average age of your open accounts and may hurt your debt-to-credit ratio because your available credit is reduced.