Using a Personal Loan to Pay Down Credit Card Debt Could Raise Your Credit Score by Up to 71 Points
Why use LendingTree?
Credit cards are convenient, but the debt all those swipes and taps rack up is anything but. Credit card debt can drag down your credit score, as well as your financial and mental well-being. So what do you do if you’ve racked it up? A personal loan may help you save money, consolidate debt into one payment and significantly boost your credit score.
How significantly? The latest LendingTree study looks at consumers who originated their only personal loan and paid down at least $1,000 in credit card debt in the same period. Among our findings, average credit scores jumped 16 to 71 points in just a month depending on how much credit card debt was paid off.
On this page
- Key findings
- Using a personal loan to pay down credit card debt boosts consumers’ credit scores by an average of 30 points
- Paying down $25,000 or more in credit card debt via a personal loan could boost your credit score by an average of 71 points
- How borrowers who use a personal loan to pay down credit card debt decrease their balances
- Pros/cons of using a personal loan to pay down credit card debt
- Methodology
Key findings
- Using a personal loan to pay down credit card debt could significantly boost your credit score after one month. LendingTree users who took out a personal loan and paid down at least $1,000 in credit card debt saw their credit scores jump by an average of 30 points after one month. After three months, users still saw an average increase of 22 points.
- Millennials get the biggest credit score boost from using a personal loan to pay down credit card debt. Millennials saw their credit scores jump an average of 36 points under this scenario — the only generation that saw improvements above the average. Meanwhile, Gen Xers and baby boomers saw boosts of 30 and 23 points, respectively. The same pattern held after three months.
- Perhaps not surprising — but still important — paying down higher amounts of credit card debt via a personal loan boosts your credit score even more. Borrowers who used a personal loan to pay down $25,000 or more in credit card debt saw their credit scores rise by an average of 71 points the month after. The average score was still up 61 points three months after.
- Borrowers who use a personal loan to pay down credit card debt typically cut their balances in half. The month after taking out a personal loan, LendingTree users’ credit card balances dropped by an average of 52.1%, or $7,881. Their credit card balances were higher after three months, showing that their borrowing continued.
This study is based on the March 2023 and May 2023 credit scores and credit card balances of LendingTree users who originated a personal loan in February 2023. We only included users who paid down at least $1,000 in credit card debt between January and March 2023.
Using a personal loan to pay down credit card debt boosts consumers’ credit scores by an average of 30 points
Though taking on debt to tackle debt may sound counterintuitive, using a personal loan with a lower interest rate to pay off credit card debt can pay off in several ways.
Another big deal is the impact of paying down credit card debt with a personal loan on your credit score. We looked at LendingTree users who originated a personal loan in February 2023 and paid off at least $1,000 in credit card debt between January and March 2023. Then we looked at their credit scores the month before (January 2023) and one month after (March 2023) the loan originated. What we found: The average credit score climbed from 669 in January to 699 in March — a 30-point bump in a month.
Average credit score change after using a personal loan to pay down credit card debt
| January credit score | March credit score | May credit score | Average credit score change after 1 month | Average credit score change after 3 months |
|---|---|---|---|---|
| 669 | 699 | 691 | 30 | 22 |
Source: LendingTree analysis of internal data.
According to Schulz, there are several factors at play — primarily that a personal loan typically comes with a lower interest rate. This allows you to pay down your balance more quickly, which is the best way to improve your credit score. It also improves your credit by lowering your utilization rate on your credit cards and, depending on your circumstances, betters your credit mix.
We also looked at credit scores in May 2023, three months after the personal loan originated — the average was still up 22 points. Why did it slip from the initial 30-point boost? Schulz says it’s likely due to continued credit card charging, but more on that later.
However, not all consumers see the same credit score boosts:
- Millennials (ages 27 to 42) got the biggest bumps to their credit scores after one month, with averages climbing 36 points from 650 in January to 686 in March.
- The average credit scores of Gen Xers (ages 43 to 58) rose 30 points, from 672 to 702.
- Baby boomers (ages 59 to 77) saw a 23-point bump, from an average of 699 to 722.
Gen Zers (ages 18 to 26) weren’t included because the sample size was too small.
Average credit score change after using a personal loan to pay down credit card debt (by generation)
| Generation | January credit score | March credit score | May credit score | Average credit score change after 1 month | Average credit score change after 3 months |
|---|---|---|---|---|---|
| Baby boomer | 699 | 722 | 719 | 23 | 20 |
| Gen X | 672 | 702 | 693 | 30 | 21 |
| Millennial | 650 | 686 | 677 | 36 | 27 |
Source: LendingTree analysis of internal data.
After three months, all generations maintained a boost to their credit score, albeit lower than the original one. Millennials maintained a 27-point increase in their credit score (compared with 36 points in March), while Gen Xers and baby boomers maintained 21- and 20-point increases, respectively (compared with 30 and 23 points).
How much do these credit score boosts matter? There are two primary credit scoring systems — FICO and VantageScore — and when you look at what differentiates the various categories, you can see how boosts can push you into a higher category (e.g., from good to very good or poor to fair). And, of course, a higher category means more opportunities and better interest rates for everything from car loans to mortgages, which matter a lot.
Here’s a glance at the ranges by model:
FICO Score ratings
| Credit score | Rating |
|---|---|
| 300-579 | Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very good |
| 800-850 | Exceptional |
VantageScore ratings
| Credit score | Rating |
|---|---|
| 300-499 | Very poor |
| 500-600 | Poor |
| 601-660 | Fair |
| 661-780 | Good |
| 781-850 | Excellent |
Paying down $25,000 or more in credit card debt via a personal loan could boost your credit score by an average of 71 points
It stands to reason that the more credit card debt you pay off, the bigger the boost to your credit score — our study shows just how much bigger.
For example, when we looked at those who paid off $25,000 or more in credit card debt after originating a personal loan in February, the average credit score spiked 71 points from 653 in January to 724 in March. Those who paid off credit card debt between $1,000 and $4,999 saw an average boost of 16 points in a month, with the average score climbing from 668 to 684.
You can see how the credit card debt ranges in between were affected in the chart below, but the takeaway is that there’s a boost at any level.
Average credit score change after using a personal loan to pay down credit card debt (by credit card balance decrease)
| Amount paid off | January credit score | March credit score | May credit score | Average credit score change after 1 month | Average credit score change after 3 months |
|---|---|---|---|---|---|
| $1,000 to $4,999 | 668 | 684 | 675 | 16 | 7 |
| $5,000 to $9,999 | 673 | 703 | 698 | 30 | 25 |
| $10,000 to $14,999 | 671 | 720 | 708 | 49 | 37 |
| $15,000 to $19,999 | 666 | 724 | 719 | 58 | 53 |
| $20,000 to $24,999 | 667 | 734 | 731 | 67 | 64 |
| $25,000 or more | 653 | 724 | 714 | 71 | 61 |
Source: LendingTree analysis of internal data.
Again, credit scores were still up across the board three months later, though not as high as after the initial boost. The average score of those who paid off $25,000 or more was still up 61 points (down from 71), while the average of those who paid between $1,000 and $4,999 was up 7 points (down from 16) after three months.
How borrowers who use a personal loan to pay down credit card debt decrease their balances
As for credit card balances, they were typically halved a month after the paydown — dropping by an average of 52.1%, or $7,881. Again, the impact varied by generation:
- Baby boomers who used a personal loan to pay down credit card debt decreased their balance most significantly — down 55.2% from an average of $17,548 in January to $9,688 in March.
- The average balance for Gen Xers decreased by 53.7% after one month.
- The average balance for millennials decreased by 49.1% after a month.
But plastic is a hard habit to break, and all the average balances bounced back a bit after three months, meaning the charging didn’t stop after the initial paydown.
After three months, the balance for baby boomers was down by 37.1% (compared with 55.2%), and the balance for Gen Xers was down by 34.3% (compared with 53.7%). Millennials quelled the charging a bit better than the other generations, with the average balance still down 40.4% (compared with 49.1%) after three months.
Average credit card balance change after using a personal loan to pay down credit card debt (by generation/overall)
| Generation | January credit card balance | March credit card balance | May credit card balance | Average credit card balance change after 1 month ($) | Average credit card balance change after 3 months ($) | Average credit card balance change after 1 month (%) | Average credit card balance change after 3 months (%) |
|---|---|---|---|---|---|---|---|
| Baby boomer | $17,548 | $9,688 | $11,031 | $7,860 | $6,517 | -55.2% | -37.1% |
| Gen X | $17,352 | $9,325 | $11,405 | $8,027 | $5,947 | -53.7% | -34.3% |
| Millennial | $15,653 | $7,683 | $9,326 | $7,970 | $6,327 | -49.1% | -40.4% |
| Overall | $16,459 | $8,578 | $10,332 | $7,881 | $6,127 | -52.1% | -37.2% |
Source: LendingTree analysis of internal data.
The differences also varied again based on the amount of debt paid down. For example, the balance for those who paid off $25,000 or more in credit card debt with a personal loan dipped from $47,999 in January to $15,816 in March. However, by May, their average balance had crept back up, reaching $19,389. The average balance for those who paid off between $1,000 and $4,999 in credit card debt with a personal loan saw the average balance dip from $9,541 in January to $7,004 in March, but it bounced back up to $8,476 by May.
Pros/cons of using a personal loan to pay down credit card debt
| Pros | Cons |
|---|---|
Improves your credit score Lower interest rates One convenient payment | A personal loan is still debt Interest rates vary There may be better options |
Pros
Improves your credit score: Paying off credit card debt can improve your credit utilization ratio, thus boosting your credit score. It may also improve your credit mix.
Lower interest rates: Personal loans often come with lower interest rates. This allows you to put more money toward the principal and, hopefully, pay off your debt sooner.
One convenient payment: A personal loan lets you consolidate multiple card payments into one, saving some headaches.
Cons
A personal loan is still debt: A personal loan may provide some immediate benefits, but you still need a long-term plan to pay off a personal loan. “If you just see the loan as a chance to spend more money rather than as a way to knock down debt, you can make a bad situation even worse,” Schulz says.
Interest rates vary: Not everyone qualifies for personal loans with the lowest rates. Compare rates and consider any fees to ensure you get a better deal.
There may be better options: A personal loan isn’t always as good a choice for paying down card balances as a 0% balance transfer credit card could be. Of course, you’ll typically need good credit to get a 0% card, so a personal loan might be the cheapest option for many.
Methodology
LendingTree researchers compared the credit scores and credit card balances from January 2023 credit reports to the credit scores and credit card balances from March and May 2023 credit reports for more than 1,600 anonymized LendingTree users who originated a personal loan in February 2023.
Only people who paid down at least $1,000 in credit card debt between January 2023 and March 2023 were included in this analysis.
We defined generations as the following:
- Millennials: Born between 1981 and 1996 (ages 27 to 42 in 2023)
- Generation Xers: Born between 1965 and 1980 (ages 43 to 58 in 2023)
- Baby boomers: Born between 1946 and 1964 (ages 59 to 77 in 2023)