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What Is the Effect of Personal Loans on My Credit

Personal loans are often taken out for emergency reasons by those who don’t have enough savings to cover the expense. This can range anywhere from home repairs to starting a business. Some people even take out this loan to pay off other pressing loans. However, not everyone is adamant to obtain a personal loan for fear that it will affect their credit.

Will Applying for a Personal Loan Hurt Your Credit?

The simple answer is yes, but it all depends on you. Taking out a personal loan is basically taking out a “new loan,” which can possibly deduct three to four points off your FICO score. To understand why this is, take a look at how your credit report determines your scoring.

How Your Credit Score Works

A big chunk of your credit score (about 35%) is based on your payment history. When you pay your bills on time, it will reflect positively on your score. But on the flip side, if you don’t make payments on time, it will turn out badly.

Two other big factors are the amount of money you owe relative to your credit limits and the length of your credit history. Creditors often find those who consistently pay on time for a long period of time more impressive.

The smaller factors that come to play are the “new credits” you take out and how you can handle paying your different debts off, like your mortgage, credit cards, and auto loans together.

How Will a Personal Loan Hit Your Credit Score?

As mentioned above, taking out a personal loan counts as taking out new credit, which will slightly decrease your score. The biggest issue is your credit history. Before you take out a personal loan, you need answers to the following questions:

  • Will taking out this loan be more beneficial than detrimental to my expenses?

  • Do I have the means to pay back the amount on time?

  • Can I balance this loan with my other loans?

These questions give you an idea of what to expect when you get a personal loan. You need to be punctual, responsible, and capable of paying things back. So a personal loan can destroy your credit only if you let it.

Should You Still Apply for a Personal Loan with Bad Credit?

You still have to go through an approval process to get a personal loan. Creditors often look at your score before approving a personal loan. However, some companies out there aren’t that strict and can lend you a hand. You just need to find a service that can help you break down your credit report and suggest your next move.


Getting a personal loan may cause a dip in your credit now, but it will do you good in the long run once you pay things off. If there is something that you need to deal with now, it’s better to take the credit than delay things for the sake of your credit score. You can always find the money and resources to pay it off.

When you’re looking to make a personal loan, you need to work with a service that genuinely tries to sort out your credit problems. Mid-Town Loans in Decherd, TN, makes the personal loan process quick and simple—whether you’re looking to rebuild credit or make a few bills. Contact us today!

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