Will a personal loan hurt my credit rating?

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The quick answer? It could.


Key points

  • Personal loans are a convenient way to borrow.
  • You will need to be careful not to go into too much debt if you want to avoid damaging your credit score.

Maintaining a strong credit rating isn’t just about having bragging rights. A good credit score could save you money and open the door to more borrowing options.

Say you have a credit score of 800, which is considered excellent. That could mean snagging a much lower interest rate on a loan than you’d get with a lower score. The result? Lower and more affordable monthly payments.

In the meantime, if you’re looking for a flexible way to borrow money, you might be inclined to consider a personal loan. Personal loans allow you to borrow money for any purpose, whether it’s furnishing a home or starting a small business. And they tend to close quickly and often come with competitive interest rates.

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More: Prequalify for a personal loan without affecting your credit score

But if you’re considering getting a personal loan, you might be wondering if it will impact your credit score. The quick answer? It could – for better or for worse.

Apply for a personal loan

Each time you apply for a loan, a lender does a thorough investigation of your credit report. This usually results in a minor credit score – somewhere in the ballpark of five to 10 points.

This kind of drop is usually not a big deal. If you have a credit score of 800 and it drops to 792, that shouldn’t hurt your chances of borrowing money whenever you want.

Repay your personal loan

How you manage your personal loan could impact your credit score. Paying off your loan on time each month could help your credit score improve or stay strong. But if you fall behind on your loan payments, your credit score could take a serious hit.

The most important factor that goes into calculating your credit score is your payment history. It shows how consistent and reliable you are when it comes to paying your bills.

If you always strive to pay on time, it sends the message to lenders that you can be trusted to borrow money because you’re good at it. But if you’re late with your payments, it sends the opposite message: lending you money is a big risk.

If you’re a few days late with just one personal loan payment, it might not do much damage to your credit score. But if you’re consistently months behind on your payments, your score could really drop a bit.

As such, if you’re considering taking out a personal loan, consider what your monthly payments will entail and make sure they fit your budget. And if you’re not sure, stop borrowing or borrow less.

Once your credit score suffers damage, it can take a long time for it to improve, especially if the source of that damage is a late payment or a series of late payments. And you don’t want to put yourself in a position where you have no borrowing options because your credit score has dropped.

All told, a personal loan could hurt your credit score or help it – it all depends on how you handle your payments. If you want to minimize your risk of falling behind on your personal loan, be very careful about the amount you borrow.

The Ascent’s Best Personal Loans for 2022

Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.