Personal Loans and Credit Scores: What You Need to Know

Personal loans can be incredibly useful especially if you’re in a financial bind. However, it’s important that you know how personal loans can affect both your short-term and long-term finances. This is why we thought it would be useful to put together a brief article talking about how personal loans can affect your credit score. If this is something that you want to learn more about, read on as we break down everything you need to know about personal loans and your credit score.

Can a Personal Loan Hurt Your Credit Score?

Despite how simple this question may seem, there are a multitude of factors that you have to consider to know whether or not a personal loan can hurt your credit score. A personal loan can be a convenient way to borrow money or consolidate debt, but it’s important to understand the effect a personal loan can have on your credit score. Its potential impacts begin when you apply for a loan and a hard inquiry appears on your credit report. Loan approval then increases the amount of debt you owe, and finally, there’s the potential that you’ll miss a bill and pay late or default. That doesn’t have to prevent you from pursuing a personal loan, however. After all, responsibly managing a personal loan can actually help you improve your credit over time.

How Can Personal Loans Hurt Your Credit Score?

If you apply for any type of credit, like a loan or credit card, lenders will request access to your credit report. Requests for access to your report result in hard inquiries on your report. Hard inquiries will remain on your report for up to two years. The hard inquiry will cause your credit score to take a slight dip, so be sure to be wary of this when taking out a personal loan.

A personal loan can also hurt your credit by lowering your FICO score if you miss a single monthly payment. Paying on time is 35% of your FICO score. A missed payment will have a significant impact on your credit, because it’s the number one factor that lenders look at when deciding whether or not to issue you credit.

How Can Personal Loans Help Your Credit Score?

Although you may be taking a risk by taking out a loan, it might help your credit if you make on-time payments. It also adds to your credit mix, which can help you in the long run. The benefits become even more evident when you consider that credit scoring models reward borrowers who can successfully manage multiple types of credit.


We hope this article proves to be useful when it comes to helping you further your understanding of how personal loans work and how they can affect your credit score. When utilized in the right situation, personal loans can do a lot of good especially if you want to increase your credit score. Be sure to keep all of the information you learned here in mind so that you can maximize your personal loans in the way that yields the most financial benefits.

Stones River Credit is an installment loan company in Murfreesboro. We are not a title loan or payday loan office; we offer real installment loans paid over time to our clients. Lending is our business and customer service is our ambition. We make fair, honest, straightforward loans and believe in the value of relationships–especially in times of need. Call us at (615) 896-5006 today if you need ,personal loans in Murfreesboro, TN.