Does consolidating debt into your mortgage hurt your credit score?

Australian credit scores weigh enquiries, the number and type of accounts, repayment history and, with comprehensive credit reporting, whether each account is paid on time. A refinance application adds one enquiry. Closing several cards removes open accounts and their limits, which lenders and the score treat as reduced exposure. Twenty-four months of clean repayment history on the new home loan then builds the score steadily. Most borrowers see their score higher a year after consolidation than before it.

Multiple applications to different lenders in a short period, which look like desperation. Missing a repayment on the new loan, which now appears in repayment history against a larger balance. Keeping the paid-out cards open and using them again, which puts the utilisation back up and adds new debt on top of the consolidated amount. Lenders see that pattern on the next application and treat it as a warning.

When you next apply for credit, the lender sees a home loan with a higher balance and, with comprehensive reporting, that the cards and loans were closed. That is a stronger position than several maxed cards and a smaller mortgage. If the cards were kept open with balances, the lender sees the consolidation did not work, and specialists will say that is one of the most common reasons a second consolidation is declined.