If You Have Bad Credit, Can You Qualify for a Debt Consolidation Loan?

If you want to consolidate your debt but you have a lousy credit score, you’re going to run into the same problems as you would trying to apply for any other loan.

Bad credit is like the worst kind of slope: a slippery one. Once you miss some payments, your credit score will start dropping and the fees and interest on that debt will keep growing.

So now you have more debt and a lower credit score which will make getting a personal loan harder. One way to help manage your debt is to take out a debt consolidation loan, where you get one big loan to pay off all your smaller ones. Then you only have one payment to make every month! And hopefully at a lower interest rate than you were paying previously!

But if you already have a poor credit score, is debt consolidation really a possibility for you? Read on and find out!


Payment history and amounts owed are the two most important parts of your score.

Before we continue, let’s make sure we’re all on the same page. Your history as a borrower is collected into documents called credit reports by the three major credit bureaus: Experian, TransUnion, and Equifax. That information is then fed through an algorithm created by the FICO corporation to create your credit score, a three-digit number that expresses your perceived trustworthiness as a borrower. Potential lenders use these scores to help determine whether they’ll lend to you and at what rates.

Your credit score is composed of five categories. The most important category, worth 35 percent of your total score, is your payment history. This is a measure of whether you’ve been paying your bills and paying them on time. When it comes to whether you’re likely to pay off your debts in the future, it’s not surprising that lenders will want to know whether you’ve paid your debts in the past.

The next factor, worth only a little less at 30 percent, is your amounts owed. This is, as the name suggests, the amount you currently owe to your various lenders. If you already have a lot of debt to manage, it stands to reason that you’ll have a tougher time managing new debt. In general, you’ll want to keep any credit card balances below 30 percent of your total credit limit to help this section of your score.

If you think you have a good credit score because you’ve never been in debt, you’re wrong. 

The last three factors are each less important on their own, but together they account for a little over a third of your credit score, as the math would suggest.

The length of your credit history is worth 15 percent. This is where some people can get hung up because they think having never gotten into debt in the first place will lead to a good credit score. That’s not the case. FICO’s algorithm does not look too kindly on people who’ve never borrowed money before because, well, they’ve never borrowed money before! The algorithm isn’t sure how they would handle it!

That’s why, even if you don’t qualify for a regular credit card, you should consider getting a secured credit card. This is a card that’s easier to qualify for but which requires you to put down cash as collateral. That way, you can start building up your credit by using the credit card and paying the bill in full each month. But you don’t want to use it too much since the next 10 percent is …

Your credit mix! This takes into account how your credit obligations are divided. Lenders want to see as diverse a mix as possible. So if all your debts are on credit cards or in the form of personal loans, you’ll get dinged for that.

Finally, the last 10 percent is recent credit inquiries. Hard credit checks, performed by most standard financial companies when you’re seeking a loan, will cause a temporary negative effect on your credit score. The effect isn’t huge and will only last a maximum of two years, but when you have bad credit, every little bit counts.

What is a debt consolidation loan, exactly?

Speaking of applying for a loan, just what is a debt consolidation loan? Basically, it’s a loan you take out for the express purpose of paying off the debts you want to consolidate. You take out the new loan, and then use those funds to pay your old debts off. There are certain loans that are advertised specifically as debt consolidation loans, and you include the other balances that you want to pay off as a part of the loan process.

Ideally, this new loan will have lower rates than the original loan or lower monthly payments. Or super duper ideally, both. Oftentimes, though, you’ll be asked to choose between the lower monthly payments and paying more in interest overall—even with lower rates. A longer term on a loan means lower payments, while a shorter term means less interest will accrue. In choosing between the two, it’s really about what’s right for you.

If you’re applying for a debt consolidation loan that has a higher interest rate than your current debts or monthly payments that you can’t afford, then you shouldn’t take out that loan. While simplifying your debts is a good thing—allowing you to make one payment each month instead of many—paying more money in order to do that is not.

So can you get a debt consolidation loan with bad credit? And should you?

Folks with bad credit will run into the same issues with a debt consolidation loan that they will with regular loans.

Getting a debt consolidation loan with bad credit is like getting any other loan with bad credit: less than ideal. Traditional lenders likely won’t lend to you at all, and the ones that will are going to charge you much higher interest rates. The rates might be so high that the loan isn’t even worth it. Loans or credit cards that were taken out before you had a bad credit score might have better rates than anything you’re able to qualify for right now.

You’ll also want to be very careful with any lender that does want to lend to you when you have bad credit. While there are many bad credit lenders out there that are totally legit, there are many others whose predatory products will trap you in a cycle of debt. Trying to consolidate your debt with one of these lenders could leave you in a worse situation than you were in before the consolidation.

Then again, even the higher rates from one bad credit loan might be far better than what you’re paying on your other bad credit debt. For instance, if you have multiple payday loans outstanding that you are struggling to pay, consolidating all of those loans into a single bad credit installment loan with longer terms and lower payments might just be the ticket to stabilizing your finances.

The solution to choosing the right bad credit debt consolidation loan is simple: Do your research. Make sure you compare different loans using their APR, or annual percentage rate, to determine which one is most affordable, and make sure to read all of the fine print before signing anything. Check the monthly payment amounts against your budget and see whether or not you’ll be able to afford them. Online reviews can also help you determine which lender is the right choice for you.

In a best-case scenario, you’ll find a debt consolidation loan with better terms that will report your payments to the credit bureaus. Then, not only will you be handling your debt, you’ll be building your credit score back up as well!

Having a bad credit score is always going to be tougher than having a good one. But it might still be worth looking into a debt consolidation loan. As long as you don’t have to agree to any hard credit checks, there isn’t a downside to exploring your options.

To learn more about getting out of debt, check out these related posts and articles from OppLoans:

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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.