How Do Personal Loans Affect Your Credit?

A personal loan is one way to smooth your finances or get extra cash for a purchase. An unsecured personal loan can allow you to accomplish some of your goals without the need for collateral, or to share a specific purpose with the lender.

But whenever you get any loan, it’s important to consider the impact on your finances and on your credit. Before you apply for a personal loan, consider the credit score factors that are likely to be a part of the equation. Any debt impacts your credit — and that means a personal loan can affect your situation as well.

With a personal loan, the main things that affect your credit score fall under the categories “length of credit history” and “new credit.” When you apply for a personal loan, that represents an inquiry that will show up on your credit report and impact your credit score.
Your new credit will also have an impact on your credit history. Part of the calculation of credit history is the average age of your accounts. A new credit account, like your personal loan, brings down the average age of your accounts.

Once you get your personal loan, it’s important to pay attention to how you manage it, since that’s what will matter most to your credit score going forward.
If you make your loan payments on time and in full, your score will be impacted positively. The more on-time payments you have, the better your credit score.

If you miss payments on your personal loan, you will be penalized. When you get any type of credit, it’s vital that you make regular payments to prevent damage to your credit score.

A personal loan is most dangerous to your credit when you don’t make payments.

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