A personal loan affects your credit score in several ways — some negative in the short term, some positive over time. The net impact depends on how you use the loan and whether you make payments on time. Here's the complete picture.

6–36%
APR Range
$1K–$50K
Loan Amounts
24–60 mo
Typical Terms
SoFi Personal LoanRates from 8.99% APR, no fees, same-day funding
Check My Rate →

How a Personal Loan Hurts Your Credit (Short-Term)

WISEIQ TOP PICK
PERSONAL LOANS
Upstart logoUpstart
Best for fair & thin credit · AI-powered approval
APR RANGE
7.80%–35.99%
LOAN AMOUNT
$1K–$50K
MIN. CREDIT
300
✓ No prepayment penalty ✓ Funds in 1 business day ✓ Soft pull pre-qualification ✓ Considers education & job history
Check My Rate →
No credit score impact
WiseIQ may earn a referral fee if you apply through this link. Rates shown are representative and may vary. See Upstart's website for full terms.

Applying for a personal loan triggers a hard inquiry, which can temporarily lower your score by 5–10 points. This impact is usually minor and recovers within a few months of responsible payment behavior.

💡 Expert Tip: Pre-qualify with multiple lenders before applying. Pre-qualification uses a soft credit pull and won't affect your credit score.

Opening a new account also lowers your average account age, which can have a small negative impact — particularly if you have a short credit history.

✓ Pros

  • Fixed monthly payments
  • Lower APR than credit cards
  • No collateral required
  • Fast funding (1–3 business days)

✗ Cons

  • Origination fees (1–8%)
  • Hard credit inquiry required
  • Prepayment penalties possible
  • Higher rates for bad credit

How a Personal Loan Helps Your Credit (Long-Term)

Personal loans can improve your credit in three ways over time:

  • **Credit mix**: Adding an installment loan (personal loan) to a credit profile that only has revolving accounts (credit cards) improves your credit mix, which accounts for 10% of your FICO score.

2. **Payment history**: Every on-time payment is reported to credit bureaus and builds positive payment history — the most important factor in your FICO score (35%).

3. **Credit utilization**: If you use a personal loan to pay off credit card debt, your credit utilization ratio drops significantly, which can provide a large score boost.

UpstartAccepts 300+ credit score, rates from 7.80% APR
Check My Rate →

Using a Personal Loan for Debt Consolidation

Using a personal loan to consolidate credit card debt is one of the most effective ways to improve your credit score quickly. If you have $10,000 across multiple credit cards at high utilization, paying them off with a personal loan drops your revolving utilization to near zero — potentially boosting your score by 20–50 points within 30–60 days.

Related Articles

What Is a Good Credit Score?Best Personal Loans for Debt ConsolidationUpgrade vs SoFi Personal LoanUpstart vs ProsperDebt Consolidation vs Bankruptcy

Frequently Asked Questions

Does applying for a personal loan hurt your credit?
Yes, a hard inquiry from the application can temporarily lower your score by 5–10 points. Use pre-qualification tools to check rates without a hard pull.
How long does a personal loan stay on your credit report?
A personal loan remains on your credit report for 7 years after the account is closed (or 7 years from the date of first delinquency if the account went delinquent).
Can a personal loan improve my credit score?
Yes. On-time payments build positive payment history, and using a loan to pay off credit cards reduces your utilization ratio — both of which can significantly improve your score over time.
What credit score do I need for a personal loan?
Most major lenders require a minimum score of 580–640. Upstart accepts scores as low as 300; SoFi and LightStream typically require 660+.