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Do Personal Loans Hurt Credit Scores?
June 1, 2026
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June 1, 2026
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Your credit score is shaped by several factors, and a personal loan touches most of them. The initial hard inquiry dings your score slightly, but as you build a track record of on-time payments, diversify your credit mix, and potentially lower your credit card utilization, the positive effects can outweigh that early dip. If you're considering a personal loan for debt consolidation or a major expense, compare personal loan rates to find the right fit for your situation.
A personal loan is a type of loan that lets you borrow money for whatever you need. You can use a personal loan for many reasons: to fund expensive home repairs, help pay off medical bills, or even to get money for a vacation. Personal loans don’t have the same restrictions on uses as purpose-built loans like auto loans or mortgages.
Another benefit to personal loans is that they are unsecured loans. You don’t need to put up any of your assets, like your home or your car, as collateral. Of course, just because a loan is unsecured doesn’t mean you aren’t responsible for paying it back. Failing to pay off a personal loan on time can severely hurt your credit score and make it harder to borrow money in the future.
Personal loans are a little bit like credit cards in that you can borrow money to spend on whatever you want. However, personal loans are a type of installment loan, whereas credit cards offer revolving credit.
Installment loans offer a lump sum of cash upfront, then require monthly payments of a fixed amount. Revolving credit lets you borrow cash as needed up to a maximum, but it’s up to you to decide how much to borrow and when. Credit cards also require a monthly payment, but you can choose to pay off any amount between the minimum payment and your total debt.
Importantly, personal loans typically have much lower interest rates than credit cards. This makes them an attractive choice if you need cash right away and want to keep the costs of borrowing as low as possible.
Take your time when reviewing the terms, monthly payment, and APR carefully before accepting. You must select the option that best supports your financial goals and budget, not just the fastest timeline or the lowest APR.
Personal loans aren't just borrowing — they're a credit-building opportunity when managed responsibly. Here's how they can work in your favor.
Payment history is the single most important factor in your FICO score, accounting for 35% of your overall score. Every on-time payment you make on a personal loan gets reported to the three major credit bureaus — Equifax, Experian, and TransUnion.
That means 12, 24, or even 60 months of consistent payments create a long, positive track record. If your credit file is thin or you've had a few late payments in the past, a personal loan with on-time payments can help rebuild credibility with lenders. Setting up autopay is one of the simplest ways to make sure you never miss a due date. If you're ahead of schedule, you can even pay off a personal loan faster to save on interest.
Your credit utilization ratio — the percentage of your available revolving credit you're currently using — makes up about 30% of your FICO score. Most credit experts recommend keeping it below 30%, and below 10% is even better.
Here's where personal loans offer a strategic advantage: if you use a personal loan to pay off credit card balances, your revolving utilization drops. And because personal loans are installment debt (not revolving credit), the loan balance itself doesn't count toward your utilization ratio. So you're effectively shifting debt from a category that hurts your score to one that doesn't.
Credit mix accounts for about 10% of your FICO score. Credit scoring models look favorably on borrowers who manage different types of credit — both revolving accounts (like credit cards) and installment loans (like personal loans, auto loans, or mortgages).
If your credit history consists mostly of credit cards, adding a personal loan introduces an installment account to your profile. It's not the biggest scoring factor, but for borrowers on the edge of a higher score tier, that 10% can make a meaningful difference.
A personal loan isn't automatically good for your credit. There are real risks, and understanding them helps you avoid common mistakes.
When you formally apply for a personal loan, the lender runs a hard inquiry on your credit report. According to myFICO, a single hard inquiry typically lowers your score by fewer than 5 points, and the impact fades within about 12 months.
One inquiry isn't a big deal for most borrowers. But if you apply with multiple lenders outside a rate-shopping window (which FICO groups into a single inquiry if done within 14 to 45 days), those inquiries can stack up. The good news: many lenders offer pre-qualification with a soft credit check, which doesn't affect your score at all. Use soft-pull pre-qualification to narrow your options before formally applying.
The same factor that makes a personal loan helpful — payment history — can work against you if you fall behind. A payment reported 30 or more days late can cause a significant score drop, and that negative mark can remain on your credit report for up to 7 years.
If you're already stretched financially, adding a fixed monthly obligation increases the stakes. Before you borrow, make sure the monthly payment fits comfortably within your budget — not just in a best-case scenario, but if unexpected expenses come up, too. If you do hit a rough patch, learn what to do if you can't make your payment before it's reported late.
A personal loan doesn't make debt disappear — it restructures it. If you consolidate credit card balances but then run those cards back up, you'll end up with more total debt than you started with. The key: once you pay off cards with a personal loan, avoid recharging them. To understand the full trade-offs, weigh the pros and cons of a personal loan before you borrow.
The length of your credit history accounts for about 15% of your FICO score. Every time you open a new account, your average age of credit decreases. If your credit file is relatively young — say, you've only had credit cards for a few years — a new personal loan can noticeably shorten that average.
This effect is typically small and temporary. As your personal loan ages alongside your other accounts, the average recovers. But it's worth knowing about, especially if you're planning other credit applications in the near future.
There's no single minimum credit score for a personal loan — requirements vary by lender. But here's a general breakdown of where you stand based on FICO score ranges:
| FICO Score Range | Rating | Personal Loan Likelihood |
|---|---|---|
| 740–850 | Excellent | Broad access to lenders; lowest rates available |
| 670–739 | Good | Qualified with most lenders; competitive rates |
| 580–669 | Fair | Options available, especially with online lenders; higher rates |
| 300–579 | Poor | Limited options; may require a co-signer or secured loan |
Lenders set their own minimums, but borrowers in the fair-credit range (580–669) can often find options with online lenders — though at higher interest rates. Regardless of where your score falls, checking your rate through a soft-pull pre-qualification won't affect your credit and gives you a realistic picture of what you'd pay.
If you're weighing whether a personal loan makes sense for your situation, here's a clear path forward:
A personal loan may be a strong choice if you're consolidating high-interest credit card debt, need a predictable fixed monthly payment, or want to avoid putting assets like your home at risk as collateral. It may not be the right move if you're unsure you can keep up with the payments or if you'd be tempted to run credit card balances back up. To help decide, weigh the pros and cons of a personal loan for your specific situation.
The initial hard inquiry when you apply typically lowers your score by fewer than 5 points, according to myFICO. Long-term impact depends on your payment behavior — on-time payments can help your score climb, while missed payments can cause a significant drop.
Yes. A personal loan appears on your credit report as an installment account. It shows your original loan amount, current balance, payment history, and account status. Closed accounts in good standing can remain on your report for up to 10 years.
It can be a smart strategy if the personal loan interest rate is lower than your credit card rates. Consolidating into a fixed-rate personal loan simplifies your payments and may reduce your credit utilization ratio, which can help your score. The key is to avoid running up new balances on the cards you paid off.
The hard inquiry from your application affects your score for about 12 months and stays on your report for 2 years. Positive payment history builds throughout the loan term — often 2 to 7 years. Late payments can remain on your report for up to 7 years from the date they were reported.
Most lenders report a payment as late once it's 30 days past due. That late payment can stay on your credit report for up to 7 years and may cause a noticeable score drop. If you're struggling to make a payment, contact your lender immediately — many offer hardship programs or modified payment plans before reporting to the bureaus.
A personal loan can work for or against your credit — it depends entirely on how you manage it. The hard inquiry when you apply creates a small, temporary dip. But the long-term benefits of consistent on-time payments, improved credit mix, and potentially lower credit utilization can leave your score stronger than where it started.
The bottom line: if you can commit to making every payment on time and you avoid re-accumulating debt on paid-off credit cards, a personal loan may help your credit more than it hurts it. Ready to see what rates you qualify for? Compare personal loan options to find a lender that fits your needs.
Michael Graw is a personal finance expert at BestMoney.com, specializing in online banking and insurance. His work has appeared in print magazines and on high-impact websites. With a passion for clarity and practicality, Michael helps readers navigate today’s financial landscape.
