Personal loans can be great options for refinancing high-interest debt or covering unexpected expenses. But you might find yourself asking: How does a personal loan affect my credit score?
A personal loan can impact your credit score in multiple ways, including when you apply, borrow and begin to repay the debt — let’s take a look at how.
A personal loan is a general-purpose consumer loan. Unlike a mortgage, a car loan or a student loan, you can use a personal loan for any purpose, such as consolidating debt or paying off large, one-time expenses, like a medical bill.
Mortgages and car loans also differ from personal loans in that they’re secured loans — meaning the home or car you buy with the loan is collateral and can be seized if you don’t make your payments. Personal loans are usually unsecured and lenders will use your credit score and income level to determine if they’ll lend to you, how much they’ll lend to you, and at what interest rate. Secured personal loans are an option if you don’t have the credit or cosigner to qualify for a typically safer-to-borrow unsecured loan.
You can easily compare personal loan rates from top lenders in minutes with Credible.
Fortunately, if handled correctly, a personal loan can positively impact your credit score. A personal loan can affect your score in the following ways:
That said, unfortunately, a personal loan can also have a negative impact on your score. Here’s how:
To a large degree, how a personal loan affects your credit score is under your control. Here are some strategies you can use to ensure that any personal loan you take out benefits you in the long run:
Determining whether a personal loan is a good choice for you will depend on your unique financial situation. Here are some scenarios when a personal loan may be the best choice:
If you’ve determined that a personal loan is right for you, visit Credible to compare personal loan rates from multiple lenders without affecting your credit score.
Here’s how you can get a personal loan in five simple steps:
If you can’t qualify for a personal loan or are wisely considering other options, here are some alternatives you can look into: