Will Personal Loans Hurt My Credit Score?

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What’s the short answer? done.

Key Point

• A personal loan is a convenient way of borrowing.
• If you want to avoid damaging your credit score, you should be careful not to borrow too much.

Maintaining a solid credit score isn’t just about bragging. A good credit score can save you money and open the door to more borrowing opportunities.

Let’s say your credit score is 800 and you are considered in good standing. Doing so could mean snagging a much lower interest rate on a loan than you’d get with a lower score. Cheaper, more affordable monthly rates.

On the other hand, if you’re looking for a flexible way to borrow money, you might be inclined to consider a personal loan. With a personal loan, you can borrow money for anything from furnishing your home to launching your small business venture. And they tend to close quickly and are often offered at competitive interest rates.

But if you’re thinking of taking out a personal loan, you may wonder if it will affect your credit score. What’s the short answer? For better or worse.

personal loan application

Whenever you apply for a loan, the lender will do a rigorous check on your credit report. This is usually a small credit score hit, around 5-10 points.

This kind of drop is generally not a big deal. If your credit score is 800 and it drops to 792, it doesn’t hurt your ability to borrow money when you need it.

personal loan repayment

How you manage your personal loans can affect your credit score. Paying your loan on time every month can improve your credit score and keep you in good standing. But late loan payments can take a serious toll on your credit score.

The most important factor used in calculating your credit score is your payment history. This speaks to how consistent and reliable we are when it comes to bill payments.

If you always pay your bills on time, the lender will get the message that you can borrow the money. But late payments send the opposite message. In other words, lending money is a big risk.

A single personal loan payment a few days late won’t do much damage to your credit score. But if you’re months behind on payments, your score can drop significantly.

So if you take out a personal loan, find out what the monthly payments entail and see if it fits in your budget. If in doubt, hold off on borrowing or borrow less.

Once your credit score is damaged, it can take a long time to improve, especially if the damage is caused by a late payment or series of late payments. Also, you don’t want to end up in a situation where your credit score plummets and you have no borrowing options.

After all, personal loans can hurt or help your credit score – it all depends on how you handle payments. Be very careful with the amount.