How Does Credit Card Consolidation Affect Your Credit Score?

Credit card consolidation potentially helps your credit score by reducing balances on other accounts. However, improvement in your score may be minimal or short-term. Actually paying down balances is a much better strategy than consolidation, which merely moves the debt around. Paying all your bills on time and keeping all revolving balances low is the most effective way to build credit.

Reasonable Expectations

Patience and persistence is needed to rebuild credit, with significant results usually realized after 12 to 24 months of practicing solid credit fundamentals. One-time moves such as consolidation could improve your score by a few points, and maybe that's all you need to qualify for a mortgage or better interest rate on a new car loan. Overall, it's best to adopt a broader strategy for building credit.

Pitfalls

Some people consolidate credit card debt and later begin charging again. After a while, the cards that were paid off are carrying a balance, creating an even bigger drag on the credit score. That's perhaps the biggest danger with consolidation. Many people consolidate and find that it leads to little real improvement in score and eventually more debt. Lock your credit cards away in a bank safe deposit box if you do consolidate. The cards will remain available in an emergency and you'll avoid impulse spending by not carrying them around.

Credit Scores

It's impossible to predict exactly how much your score will improve after consolidation because everybody's credit situation is different. Usually people with lower scores see the most improvement. Credit scores are three-digit numbers ranging from 350 to 850, with scores of 720 or higher representing excellent credit. A score of 620 is usually needed to qualify for a home mortgage, although there are exceptions. Higher credit scores lead to lower interest rates.

Negative Information

Consolidation won't help much if your credit report is full of negative information such as late payments, charge-offs, collection accounts or tax liens. Simply making payments to bring all your accounts current could boost your score as much as consolidation. Removing negative information such as charge-offs through legal and ethical methods helps as well. A creditor may agree to remove an old charge off in exchange for full payment. That is called "pay-for-delete," and it is rarely granted. However, it's worth a try on all charge-offs and collection accounts.

Free Credit Reports

Pull a copy of your credit report for free before starting your rebuilding. View and print the report from AnnualCreditReport.com, which is endorsed by the U.S. government to offer credit reports for free under the terms of the Fair Credit Reporting Act. Order you credit score separately, for a fee.