I’ve seen several people coming to this site from Google looking for information on how debt consolidation will impact their credit rating. Most people get a debt consolidation loan after they are in financial trouble. If you get a consolidation loan before you’ve missed any payments, it will probably have little to no impact on your credit rating. Basically it will show that you paid off all your debt and took out another loan from the consolidation company. If you use your house equity, it will just look like you have a mortgage on your home that went up.
However, once you start missing payments or trying to settle debt with your creditors, it will have an impact on your credit rating. However, if debt consolidation keeps you out of bankruptcy, it will probably have less of an impact than going bankrupt. Your credit score tells companies how likely you are to pay your bills. If you miss some payments, settle or reduce some of the debt, take out a consolidation loan and then pay it off, you will still be lower risk than someone who has ignored their debt responsibility entirely and gone bankrupt.
So for most people debt consolidation will have an impact on their credit rating because they won’t get a consolidation loan until after they miss payments or have something reposessed.
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