Does A Personal Loan Affect Your Credit?

“A personal loan can improve your credit scores in the long term as long as you consistently repay the debt on time.”

Your credit score gets affected when: 

  • You apply for a personal loan.
  • You shop for a personal loan.
  • You regularly repay your personal loan.
  • Miss a loan repayment
  • Consolidate your debt

Applying for a personal loan



A personal loan application triggers a hard credit check that can temporarily lower your credit scores. A hard credit check is an evaluation of your credit history. This evaluation knocks off approx. five points from your FICO credit score. Overall, new credit applications account for about 10% of your credit scores. This inquiry typically stays on your credit report for two years but only affects your score the first year. 

Repaying your personal loan

Consistent and on-time payments toward your debts improve your credit in the long-term. Your repayment history forms up to 30% of your credit score. Therefore, it is very important that you have a spotless repayment record starting now, even if you have had defaults in the past. 

Missing a loan repayment

Did you know? 

“A 30-day delinquency could lower an excellent score by 90 to 110 points.” 

It doesn’t affect your credit but payments delayed toward your personal loan for more than 30 days may be reported to the credit bureaus, affecting your credit score noticeably. 

Making a budget that accounts for all your debt repayments, including your personal loan, can help you avoid missed payments. 

Consolidating your debt

Consolidating debts into a personal loan can improve your credit by lowering your credit utilization. Your credit utilization ratio — the amount of your available credit you use — accounts for 30% of your overall credit scores. Make sure that you do your payments on time. 

Need help to improve your credit? You can contact various banks in the Bayport.

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