How Does a Personal Loan Affect My Credit Score?

Yes. Personal loans can affect your credit score. On a positive note, it can even improve your credit score if you consistently make timely payments.

A loan affects your credit score just like any other form of credit, and making payments on time will help you build your credit.

Late payments seriously damage your credit score, as they are reported to credit bureaus. We recommend always staying on top of your payments to protect your score.

A personal loan can affect your credit score in the following ways:

• When you apply for a personal loan
• When you make regular loan payments
• When you use the loan to consolidate your debt
• When you miss a payment

Most online lenders will allow you to pre-qualify for a loan; this involves a soft credit check to determine your creditworthiness without affecting your credit score.

This means you can confidently choose personal loans with the best rates and terms without facing a hard inquiry or “hard pull” on your credit history.

However, when you formally apply for a personal loan, it will trigger a hard credit check as the lender completes a thorough evaluation of your credit history, including your debt-to-income ratio.

A hard inquiry usually subtracts less than five points from your FICO credit score. It will stay on your credit report for about two years, but it will only affect your credit score for the first year.

If you need a personal loan, feel free to use our LoanFinder™️ tool to find the best one for your needs!