Do Personal Loans Hurt Your Credit Score? (2024)

FAQs

Do Personal Loans Hurt Your Credit Score? ›

A personal loan will cause a slight hit to your credit score in the short term, but making on-time payments will bring it back up and can help improve your credit in the long run. A personal loan calculator can be a big help when it comes to determining the loan repayment term that's right for you.

Hard credit checks temporarily lower your credit score by as much as 10 points. If you have excellent credit, applying for a loan will most likely make your score drop by five points or less.

A personal loan can stay on your credit report anywhere from a few years to up to a decade, depending on how you managed your debt. Missed payments may remain on your report for seven years, while bankruptcies and closed accounts that you've paid in full could stay on your report for a decade.

It is possible to pre-qualify for a personal loan without hurting your credit score. Do some research before you apply. Read reviews and learn what to consider before agreeing to take on a loan. When you're ready to apply, follow these steps to make sure you don't ding your score too much.

Your successful payments on paid off loans are still part of your credit history, but they won't have the same impact on your score. When you close the account, you will now have fewer open accounts and less account diversity. If you paid your loan off early, your history will reflect a shorter account relationship.

Does a personal loan hurt your credit score? Your credit score can dip a few points when you formally apply for a personal loan, but missed payments can cause a more significant drop. Getting a personal loan will also increase the amount of debt you owe, which is one of the factors that make up your credit score.

You will need a credit score of 580 or higher to get a $30,000 personal loan in most cases, along with enough income to afford the monthly bill payments. Other common loan requirements include being at least 18 years old, being a U.S. citizen or a permanent resident, and having a valid bank account.

If you're not careful, it can be tempting to rack up more debt rather than focusing solely on paying it off. Why this matters: Although taking out a personal loan can help you consolidate high-interest debt, it can cause you to go deeper into debt if you don't address any bad spending habits.

You now have fewer types of credit accounts

If you close an account that changes your credit mix, it could hurt your score. For example, if you only have credit cards and one personal loan and pay off your personal loan, you're down to a single type of credit.

Personal loans typically have lower interest rates than credit cards, which can help you save money on interest charges and pay off your debt more quickly. Additionally, personal loans usually come with fixed repayment plans, which may help you stay on track with your payments and avoid accumulating more debt.

Will my bank approve me for a personal loan with bad credit? ›

While it is possible to get approved for a personal loan if you have poor credit, the final decision, for the most part, rests with the lender you apply to. Some lenders will tell you upfront what their minimum requirements are.

If it's an unsecured personal loan (meaning no collateral was involved), most lenders don't care what you do with the funds. However, a debt consolidation loan is an exception, because it was granted for a specific purpose.

The reasons for loan denial can vary based on your unique situation. Common factors that prevent you from getting a personal loan can include a low credit score, insufficient credit history, a high debt-to-income (DTI) ratio or requesting too much money.

Paying off the loan early can put you in a situation where you must pay a prepayment penalty, potentially undoing any money you'd save on interest, and it can also impact your credit history.

As someone with a 650 credit score, you are firmly in the “fair” territory of credit. You can usually qualify for financial products like a mortgage or car loan, but you will likely pay higher interest rates than someone with a better credit score. The "good" credit range starts at 690.

Your financial condition and your monthly expenses must be considered before deciding on closing a personal loan early. Foreclosing your loan can be done if you have the financial resources to pay it off early. It can save your interest payable, improve your credit score, and free up cash flow.

In general, hard money lenders and private lenders do not report to the credit bureaus. Any organization, like banks and lenders, wishing to report customers' payment records to the bureaus has to pay each bureau for the reporting.

When a lender accesses your credit report, a so-called hard inquiry is added to your reports. If your loan application is denied, the inquiry will remain, but the lender's decision will not appear on your credit reports. So, a declined loan will not appear on your credit report and won't directly impact your scores.

To qualify for a personal loan, borrowers generally need a minimum credit score of 610 to 640. However, your chances of getting a loan with a low interest rate are much higher if you have a “good” or “excellent” credit score of 670 and above.