Credit Repair vs. Debt Consolidation: What’s the Difference and Which Do You Need?

Dayton Uttinger  | 

You need to do something to improve your credit score, but it can be hard to sort through all the options available to help. Which debt or credit management service will help you improve your credit fastest? What will help you maintain a better credit score going forward? Credit repair and debt consolidation services both offer a better financial future, but which is the smarter option for you?

The Difference Between Credit Repair and Debt Consolidation

Ideally, you are able to get control of your finances with minimal debt. While debt is necessary to a certain extent, it’s also likely responsible for ruining your credit score and your bank balance. Both credit repair and debt consolidation are ways of mitigating your debt, but which is the better choice will ultimately depend on your circumstances.

Credit repair is a service that can negotiate with creditors and the credit reporting companies for a better credit score. Credit repair agencies request verification for any negative items that may be affecting your credit, make sure that your credit isn’t being damaged by the same debt several times over, and basically reveal errors in your credit report. This can hugely impact your credit, enabling you to be approved for a home, business, or car loan. You can also do this yourself, but sometimes it’s better to get an expert’s advice.

Debt consolidation allows you to combine the various debts you owe into one convenient bill. There are several common ways to do so, but whichever way you choose can help you balance your checkbook better. It’s always easier to keep track of one debt rather than several. However, the repayment options on your consolidated debt will probably be better as well; you’ll likely get a lower interest rate or a longer period for repayment. This will make your debt more manageable, and once you establish a pattern of making your payments, your credit score will rise.

So both of these options can help your credit score, but which one is the one for you?

Pros and Cons of Credit Repair

Credit repair is the best option if you legitimately believe that the items on your credit report are not your fault. This might be the case if:

  • One debt is being counted against your credit multiple times.
  • The debt of an ex-spouse or a person with a similar name and birthdate has been listed under your credit report.
  • You are the victim of identity theft.

Unfortunately, if there are no mistakes on your credit report, there is little that a credit repair agency can do. Many will claim to repair your credit no matter what, but this sort of guarantee is a red flag. So while this might be more “pain-free” than debt consolidation, in that you are absolved from some fiscal responsibility at the end of the day, it’s not a real solution if the debt is truly yours.

Pros and Cons of Debt Consolidation

On the flip side, debt consolidation can be a great choice for multiple legitimate debts in your name. Short-term, consolidating your debts can give you lower monthly payments and a more manageable bill load. Long-term, it can raise your credit. However, there is a potentially negative side effect of debt consolidation.

Because of how credit scores are calculated, your credit might temporarily drop after you consolidate your debts. The process typically requires you to open an new account, which necessitates a hard credit check, and you might close your current accounts as well. This sort of behavior is often viewed as risky by credit bureaus, so they will temporarily lower your credit score. However, as long as you prioritize the long game, debt consolidation will eventually better your score more than enough to account for this small setback.

Picking between credit repair and debt consolidation might at first seem like picking sides of a coin; after all, don’t they both mitigate debts and boost your credit score? However, the process differs in both cases, as does the financial situations of their ideal candidates. Deciding which one is best for you should not be difficult once you understand the good and bad of both; now you just need to resolve to follow through.


Image Source: https://depositphotos.com/

Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.

This post was updated October 16, 2017. It was originally published October 18, 2017.