Do Personal Loans Affect Your Credit Score

The short answer is yes. Personal loans do affect your credit scores depending on how you manage the repayment. A helpful guide

  • In this short 6 minutes read article, we shall answer:
  • How a personal loan improves your credit score
  • How to qualify for fast approval

What can you use a personal loan for?

You can use a personal loan that will improve your credit score for just about anything you want. The lender may ask what the loan is for during the application process, but that’s it. They don’t follow up on funds usage. 

Personal loans usually have a lower interest rate than credit cards. You may use it to pay off other higher interest rate debt by consolidating all other debts into one loan payment. Other examples of personal loan uses may include; medical bills, emergency home repairs, or even start a new small business.

 

Positive ways a personal loan affects your credit

  1. Improving your credit score and history when well managed. Make your payments on time every month and reduce your balance will help build a better credit score. You will qualify for more loans with better terms in future
  2. A diversified borrowing profile. Credit cards are revolving credit products. The balances are always different depending on usage and repayments. A personal loan is an installment loan. You pay it on regularly scheduled payments. This contributes to a better credit mix.

A personal loan can affect your credit score in some good ways but can also be negative if not managed well. The positive side of a personal loan on your credit score happens when you make your payments on time and also having a reduced balance.

Negative ways a personal loan affects your credit

  1. Credit inquiry. When you show interest in a personal loan, the lenders usually do a soft pull on your credit. This is for pre-qualification purposes. When you authorize them to check your credit, they do a hard pull/full credit history report. More credit inquiries on your credit report negatively affect your credit score
  2. Increasing your debt. If you add a personal loan onto other debts increases the amounts you owe. More and more debt is bad for your credit score and credit report. If the loan was to pay off other debt, please make sure you use the funds as intended. More debt lowers your credit score.

 

When to consider applying for a personal loan

  1. Medical emergencies. You may have a family member or yourself who need immediate medical attention that may not be covered. Or maybe the health insurance company is delaying making a decision. Kids may need braces. 
  2. Home improvement or repairs. If you need to fix a leaking roof, then it has to be done. If trees are leaning dangerously towards your house or a plumbing emergency.
  3. Paying off high-interest debts. Consolidate the other high-interest credit cards and pay them off with a personal loan

How to get a personal loan

Get pre-qualified from multiple lenders all competing for your business. Then pick the loan option that is best for your needs including debt consolidation, home repairs or medical emergencies. Achieve your personal financial goals with a personal loan here

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