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August 4, 2022

How Does a Personal Loan Affect My Credit Score?

Are personal loans bad for credit? Do loans affect credit score ratings?

Yes. A personal loan can affect your credit score. On a positive note, it can even improve your credit score if you consistently make payments on time.

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

Late payments can significantly damage your good credit score as these are reported to credit bureaus.

How does a personal loan affect credit score ratings?

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

  • When you apply for a personal loan
  • When you make regular payments on your loan
  • When you 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 shop for personal loans with the best rates and terms without facing a hard inquiry or “hard pull” on your credit.

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.

A hard inquiry usually takes away less than five points from your FICO credit score. In addition, it will stay on your credit report for about two years. However, it will only affect your credit score for the first year.

In need of a loan? You can compare personal loans from trusted lenders online.

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Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

Financial information reviewed byRoss Loehr - CFP®, MBA
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Last Updated: August 4, 2022

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