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How Does a Personal Loan Affect Your Credit Score?

A personal loan can both help and hurt your credit. The key is understanding why — and by how much — your score will be impacted.

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By Devon Delfino

Written by

Devon Delfino

Writer

Devon Delfino is an independent writer specializing in personal finance. Her work has been featured in publications such as the L.A. Times, U.S. News and World Report, Mashable, The Startup, Business Insider, Forbes, MarketWatch, CNBC, and USA Today, among others.

Edited by Jared Hughes

Written by

Jared Hughes

Editor

Jared Hughes is a personal loan editor for Credible and Fox Money, and has been producing digital content for more than six years.

Updated April 19, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

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Personal loans can either help or hurt your credit, depending on a variety of factors. A personal loan can help you build credit in the long run if you manage your debt responsibly, and can even lower your credit utilization ratio, in the case of debt consolidation. But things like a new inquiry on your report — or, more crucially, things like missed payments — can bring your score down. Knowing how a personal loan impacts your score can help you determine if one is right for you.

How a personal loan can help your credit score

  • Establishes payment history: If you’ve never taken out a loan before, or don’t have a credit history, a personal loan can help establish your payment history. Payment history makes up 35% of your FICO score, a common credit scoring model, so making your loan payments on time is crucial.
  • Can help lower credit utilization: The amount of money you owe is another important factor, accounting for 30% of your FICO score — but it’s actually your credit utilization ratio that has the biggest impact here. So, if you were to use personal loan funds to pay off revolving credit, you could also boost your score by lowering your credit utilization ratio.
  • Improves your credit mix: The types of credit accounts in your profile, such as installment loans (like personal loans) or credit cards, are also considered in your score. In general, lenders want to see that you can manage several types of credit. This makes up 10% of your credit score.
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4.24.2

Credible rating

Fixed (APR)

6.99% - 25.49%

Loan Amounts

$5000 to $100000

Min. Credit Score

700

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on Credible’s website

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3.93.9

Credible rating

Fixed (APR)

7.80% - 35.99%

Loan Amounts

$1000 to $50000

Min. Credit Score

620

Check Rates

on Credible’s website

View Details