Can a Personal Loan Hurt Your Credit?

Taking out a personal loan can both help and hurt your credit. In the short term, applying for a new loan can have a small, negative impact on your scores, due to the hard inquiry by the lender. If managed well, however, having a personal loan can boost your credit profile by adding to your positive payment history and broadening your credit mix. This could make it easier to get approved for loans and credit cards with attractive rates and terms in the future.

Here’s a closer look at how personal loans affect your credit score, both positively and negatively, plus guidelines on when it makes sense to take one out.

How Is Your Credit Score Calculated?

Understanding how a personal loan and credit score are connected starts with knowing how your credit score is calculated. The most common credit scoring model, FICO®, uses five components to calculate your score. Here’s a look at each factor and how much weight it’s given in FICO’s calculation.

•   Payment History (35%): Your record of making on-time payments to lenders is the most important component of your score. This helps creditors determine how much risk they are taking on by extending credit.

•   Amounts Owed (30%): This includes the total amount of debt you currently have and your credit utilization ratio, which measures the percentage of available credit you’re using. If you’re tapping a lot of your available credit on your credit cards, it suggests you may be overextended and, thus, at higher risk of defaulting on a loan.

•   Length of Credit History (15%): This factor takes into account the average age of your accounts, the age of your oldest account, and how long it has been since you used certain accounts. Generally, having a longer credit history can positively affect your score.

•   New Credit (10%): A small but still important part of your score is how much new credit you’ve recently taken out. Opening new accounts or having too many credit inquiries can temporarily lower your score.

•   Credit Mix (10%): Your credit mix looks at how many different types of credit you hold. Having a variety of credit types — like credit cards, retail accounts, and installment loans — can positively affect your score.

A personal loan can influence several of these factors, for better or worse, depending on how you manage it.

How Do Personal Loans Work?

A personal loan is a lump sum of money borrowed from a lender, such as a bank, credit union, or online lender. Personal loans are typically unsecured, meaning you don’t need to provide collateral (like your car or home), and can be used for various purposes like consolidating debt, covering medical bills, or funding a wedding.

When you take out a personal loan, you agree to repay it in fixed monthly installments over a predetermined period, usually ranging from two to seven years. The interest rate, determined by your creditworthiness, and any lender fees affect how much you’ll pay in total.

Recommended: Is There a Minimum Credit Score for Getting a Personal Loan?

How Do Personal Loans Affect Your Credit Score Negatively?

Many people who are thinking about getting a personal loan wonder, do personal loans hurt your credit? While personal loans can be beneficial, they also have the potential to harm your credit. Here’s how:

Requires a Hard Credit Inquiry

When you apply for a personal loan, the lender typically performs a hard credit inquiry to evaluate your creditworthiness, which can adversely impact your credit score. Hard inquiries remain on your credit report for two years. However, their negative effect on your score is minor (typically 5 points or less) and lasts only about a year.

It’s important to understand a soft vs. hard credit inquiry. Prequalifying for a personal loan involves a soft inquiry, which won’t have any impact on your score. This can give you an estimate of the interest rate and loan amount you can expect in a loan offer.

There are also soft pull personal loans, in which a lender will approve a loan based only on a soft pull. Look closely at the interest rates on these loans as compared to others. The soft-pull-only loan may have a higher rate to compensate for the risk the lender takes in only doing a soft pull.

Can Increase Overall Debt

There’s one more answer to the question of how does a personal loan affect credit score numbers: Taking out a personal loan can increase your overall debt, which can negatively affect the “amounts owed” component of your credit score. This may cause you to see a slight drop in your score. However, if you’re consolidating credit card debt, you will reduce that debt by paying it down with the personal loan, and your amounts owed won’t be impacted.

Can Negatively Impact Payment History If You Miss a Payment

Since payment history is the largest factor in credit scoring, missing just one payment on your personal loan can result in a substantial drop in your score. While being just a few days late may not affect your credit, lenders can report payments that are more than 30 days overdue to the credit bureaus. Late payments remain on your credit reports for seven years.

Setting up autopay or reminders can help ensure you make your payments on time and avoid this credit score setback.

Can Shorten Your Credit History

Taking on a new loan can shorten the average age of your credit accounts, which could have a small negative impact on your score. Generally, a longer credit history is considered better than a shorter one.

How Do Personal Loans Affect Your Credit Score Positively?

Despite the risks, a personal loan can build your credit score when managed wisely. Here’s how and personal loan and credit score can connect for the better:

Can Add to Your Credit Mix

Your credit mix accounts for 10% of your score. Adding a personal loan to your portfolio — especially if you primarily have revolving credit, like credit cards — can enhance your credit profile by showing that you can manage different types of credit responsibly.

Can Improve Your On-Time Payment History

Consistently making on-time payments on your personal loan demonstrates financial responsibility, which can strengthen your payment history — the most significant component of your score. It may take a few months for the benefits to show up but over time, this can positively impact your credit.

May Help Lower Your Credit Utilization Ratio

If you take out a personal loan to pay off high-interest credit card debt (also known as a credit card consolidation loan), you can lower your credit utilization ratio, which is the percentage of your available credit you’re using. A lower ratio — ideally under 30% — is generally beneficial for your credit. However, this strategy only works if you keep your credit card spending low after paying off your balances with the loan.

When to Consider Taking Out a Personal Loan

Even though applying for a personal loan may result in a small, temporary drop in your credit score, there are times when meeting typical personal loan requirements and taking on this type of debt can be a smart financial move. Here are some scenarios where you might consider getting a personal loan.

•   You want to consolidate high-interest debt: Personal loans typically have lower interest rates than credit cards, making them an attractive choice for paying off expensive credit card debt. An online personal loan calculator can help you determine how much you could potentially save. If you’re juggling several credit cards, a debt consolidation loan can also simplify repayment.

•   You’re facing unexpected expenses: Medical bills, home and car repairs, or other emergencies can sometimes justify taking out a loan. Using a personal loan may be more cost effective than putting these expenses on your credit card.

•   You have good or excellent credit: The best personal loan interest rates are generally reserved for borrowers who have strong credit. While there are personal loans for bad credit, they typically come with higher interest rates and other less-than-ideal terms.

•   Your debt-to-income ratio is in good shape: In addition to your credit score, your debt-to-income ratio matters when you’re applying for a personal loan. It will be easiest to qualify for a personal loan at a good rate if your DTI ratio is below 30%, though some lenders will accept a higher number.

•   You earn a steady paycheck: Getting a personal loan generally only makes sense if you have a regular income and earn enough to comfortably cover the monthly payments for the term you select.

Alternatives to Personal Loans for Building Credit

If you’re concerned about how does a personal loan affect credit score levels, you may want to take other steps to cultivate a healthy credit score, either as an alternative to obtaining a personal loan, or alongside it.

•   Pay bills on time: Set up automatic payments so you’re never late with a remittance. On-time payments are the most important contributor to your credit score.

•   Lower your utilization: The proportion of your available credit that you are using is also an important contributor to your score. To lower your usage, pay down credit card balances. “Focus on paying off one debt at a time. If you spread your money out over many debt payments, your progress may not be as fast as you want. But by focusing on one goal at a time, you can see success sooner — and that can keep your motivation up,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

•   Keep old cards open: Even if you aren’t using a particular credit card, it’s best to keep it open if you’ve had it for a while, as the overall history of your credit accounts is a factor in your credit score.

•   Consider an alternative borrowing method: If you are concerned about taking out a personal loan because your credit history is short or shaky, a credit-builder loan could allow you to borrow while building your credit profile. These loans typically are for modest amounts (meaning payments are relatively low). Your on-time payments will be reported to the credit bureaus and help nurture your score — so naturally, paying on time is key.

The Takeaway

Do personal loans hurt your credit? Personal loans can have a positive or negative impact on your credit depending on how you manage them. Initially, applying for a personal loan can slightly downgrade your score. This is due to the hard inquiry, as well as the loan’s impact on the average age of your accounts and (potentially) your overall debt load. However, if you repay the loan responsibly, having a personal loan can ultimately help your credit by adding positive payment history, diversifying your credit mix, and — if you use it to pay off credit card debt — reducing your credit utilization rate.

Before taking out a personal loan, you’ll want to assess your financial situation, shop around for the best rates and terms, and make sure the monthly payments work with your budget.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Is a personal loan bad for your credit?

A personal loan isn’t inherently bad for your credit, but its impact depends on how you manage it. Initially, applying for a loan may lower your score slightly due to the hard credit inquiry. In addition, taking on more debt can increase your amounts owed, which might affect your score. However, consistently making on-time payments can boost your payment history, a major factor in credit scores. And if you use a personal loan to consolidate credit card debt, you’ll lower your credit utilization ratio (how much of your credit limit you are using), which can positively impact your credit.

Will a personal loan affect my credit card application?

It can. If you applied for the loan recently, the hard credit inquiry may have slightly lowered your credit scores. Having a new personal loan can also lower the average age of your accounts and, potentially, increase your debt load, which can negatively impact your credit. Over time, however, having a personal loan can improve your credit profile by adding to your positive payment history and, if you use it to consolidate credit card debt, lowering your credit utilization, making it easier to get approved for a credit card.

Will a personal loan affect my car loan application?

It can. When assessing your eligibility for a car loan, lenders typically consider your credit score, debt-to-income ratio, and overall financial profile. The hard credit inquiry for the personal loan might lower your credit score temporarily. In addition, the added debt from the loan could increase your debt-to-income ratio, making you appear higher risk to a lender. On the other hand, responsible repayment of the personal loan shows financial discipline, which can improve your credit profile over time. Ultimately, this could make it easier to get a car loan with attractive rates and terms.

How long does a personal loan stay on your credit report?

If you have had trouble keeping current on personal loan payments, the negative effect could persist on your credit report for up to seven years. If you defaulted and had a judgement as a result, the effect could linger longer, depending on the situation. Closed personal loan accounts that were paid regularly as agreed can stay on your credit report for up to a decade after the account is closed, and so can have a long-term favorable effect.

Does paying off a personal loan early hurt your credit?

Paying off a loan may have a modest negative effect on your credit score because it might shorten your credit history and alter your credit mix. However, it also reduces your debt-to-income ratio, which can be a good thing where lenders are concerned.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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