[dropcap]W[/dropcap]hen you’re deciding upon a strategy to tackle your debt, like consolidation, it’s only natural to wonder: What will happen to my credit score? Is it likely to go up, down or experience fluctuation in both directions as a result?

Ultimately, the effects will boil down to which strategy you choose and how well you stick to its repayment terms over time. Keep reading to learn more about how debt consolidation can potentially improve or worsen your credit score.

How Debt Consolidation Can Lower Credit Score

Any time you apply for a loan or a balance-transfer credit card, including one for the purposes of consolidation, lenders will perform a “hard inquiry” on your credit report. As NerdWallet writes, this can lower your score by a few points in the short term. The effect can multiply if you apply for multiple lines of credit or loan products within a short period of time, as this basically signals to lenders you’re desperate for money.

If you decide to consolidate by working through a debt management plan (DMP) at a credit counseling agency, you may be asked to close some or all of your credit accounts to ensure you do not rack up any new debts on them. Closing accounts can hurt credit ratings by shortening the average age of your accounts and boosting the percentage of available credit you’re using — called a credit utilization ratio. Since longevity of accounts and credit utilization ratio are two major factors considered in credit score calculations, this action can somewhat damage your score.

Finally, pursuing any form of debt consolidation, then missing payments, has the potential to seriously damage your credit score — as payment history comprises the heftiest portion of your score.

How Debt Consolidation Can Improve Credit Score

According to a report from credit bureau TransUnion, 68 percent of consumers who consolidated their debts saw their credit scores improve by 20 points or more — and much of this improvement remained in place a year later.

So, what is it about the consolidation process that can potentially lead to improved credit?

First of all there’s the fact consolidation requires you to make consistent payments, whether you’re repaying a loan in fixed installments, paying down your debts on a balance transfer card or participating in a DMP. Building up a strong history of on-time payments is the biggest piece of the puzzle in determining your credit rating.

Since consolidation tends to simplify repayment, many borrowers also find it easier to stick to making a single payment each month, rather than keeping track of multiple credit cards. This can help people stay on track for however long it takes to gradually climb out of debt.

Working with certified debt consolidation companies requires you to agree to a timeline for repayment — often spanning three to five years — dependent upon the strategy you choose. This helps optimize your credit utilization ratio over time, which can in turn raise your score. Such a targeted approach is especially preferable to making minimum payments, which allows interest to flourish in the background, thus making your credit utilization ratio climb. Financial experts recommend trying to keep your credit utilization ratio at or below 30 percent to positively affect your credit standing.

The answer to whether debt consolidation companies can improve your credit score is yes, and successfully consolidating does tend to boost scores over the long term. However, there are a few short-term credit effects of which to remain aware, too.