How Do Personal Loans Affect Your Credit?

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Every now and then, you need a little help with your finances. A personal loan is one way to smooth your finances or get extra cash for a purchase. An unsecured personal loan can allow you to accomplish some of your goals without the need for collateral, or to share a specific purpose with the lender.

But whenever you get any loan, it’s important to consider the impact on your finances and on your credit.

Before you apply for a personal loan, consider the credit score factors that are likely to be a part of the equation. Any debt impacts your credit — and that means a personal loan can affect your situation as well.

But that doesn’t mean the effects of a personal loan will be all negative. In fact, when used properly, a personal loan can have a net positive impact on your credit, and that means it can also have an effect on your life and finances beyond just your credit rating.

What happens to your credit when you apply for a personal loan?

According to FICO, the company that provides the most popular formulas for calculating credit scores, there are five main credit score factors that each carry a specified weight:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

With a personal loan, the main things that affect your credit score fall under the categories “length of credit history” and “new credit.” When you apply for a personal loan, that represents an inquiry that will show up on your credit report and impact your credit score.

It doesn’t mean it will be a huge impact, though. FICO’s website says that for most people, a credit inquiry, like one for a personal loan, will likely only drop a credit score by about five points.

Things change if you are making a lot of credit inquiries in a short period of time, however. The more loans you apply for in a short timeframe, the bigger the impact on your credit history.

Your new credit will also have an impact on your credit history. Part of the calculation of credit history is the average age of your accounts. A new credit account, like your personal loan, brings down the average age of your accounts.

However, the impact shouldn’t be too huge, as long as you don’t have a lot of newer credit dragging on your score.

Once you get your personal loan, it’s important to pay attention to how you manage it, since that’s what will matter most to your credit score going forward.

Don’t let a personal loan bring down your credit score

Simply getting a personal loan isn’t likely to have a long-term negative impact on your credit. You might be surprised to discover that a personal loan can actually help your credit score in the long run.

Of the credit score factors, the most important item is your payment history. FICO counts it at 35% of your score, and most other credit scoring models heavily weight your payment history.

As long as you make your loan payments on time and in full, your score will be impacted positively. The more on-time payments you have, the better your credit score.

With a personal loan, factors that affect credit score most are the payments you make and the mix that your loan adds to your credit profile.

Adding a personal loan to your credit mix can actually give your score a little boost. While credit mix is only 10% of your score, it can still provide a little help. Showing that you can handle an installment loan as well as a revolving credit loan (such as a credit card) can add to your score.

The opposite is true, too. If you miss payments on your personal loan, you will be penalized. When you get any type of credit, it’s vital that you make regular payments in order to prevent damage to your credit score.

A personal loan is most dangerous to your credit when you don’t make payments.

Only borrow what you need

Any time you borrow money, it’s important to limit your loan to what you need to accomplish your goals.

A personal loan can be a way to consolidate your debt to make it easier to pay off, or to help you smooth your cash flow while you restructure your finances. No matter what you use your personal loan for, don’t borrow more than you can handle and avoid paying late.

Your installment loan won’t have the same impact in the credit utilization measure of your credit score, but it can still impact decisions about your finances in the future.

Lenders and others look at your credit file for red flags. If you have a large personal loan, it can affect your ability to get other credit and financial products, even if you have a good credit score. Lenders and others assess risk, and a large personal loan can make you a bigger financial risk.

Personal loans can help your finances, and even provide a boost to your credit, but you need to be careful about how you apply for and use them.

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

RATES (APR)loan amount
7.73% – 29.99% $1,000 to $50,000
6.26% – 14.87%1 $5,000 to $100,000
6.99% – 35.97%* $1,000 to $50,000
56.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
4.99% – 29.99%4 $10,000 to $35,000
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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.990% APR to 14.865% APR (with AutoPay). Variable rates from 6.255% APR to 12.555% APR (with AutoPay). SoFi rate ranges are current as of September 1, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.255% APR assumes current index rate derived from the 1-month LIBOR of 2.08% plus 4.425% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

    To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.See Consumer Licenses.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Important Disclosures for Opploans.

Opploans Disclosures

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Opploans currently operates in these states:

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. This information is current as of October 10, 2017 and is subject to change. Opportunity Financial, LLC lends or arranges loans in the following states: Alabama, California, Delaware, Florida, Idaho, Illinois, Kansas, Maryland, Missouri, Nevada, New Mexico, Ohio, South Carolina, Tennessee, Texas, Utah, Virginia, and Wisconsin. We do not lend or arrange loans in all states. Opportunity Financial offers line of credit products in: Kansas, Tennessee and Virginia. Please note: This is an expensive form of credit. This service is not intended to provide a solution for longer-term credit or other financial needs. Loans made or arranged by Opportunity Financial are designed to help you meet your short-term borrowing needs. Loan amounts may vary and are dependent upon qualification criteria and state law. Refer to Loan Cost & Terms at www.opploans.com for additional details. Complete disclosures of APR, fees and payment terms are provided within the transaction documents, such as the Loan Agreement. First-time Opportunity Financial customers typically qualify for an installment loan of $1,000 to $5,000 with an APR from 59% to 199%. For example, a $1,000 loan made or arranged by Opportunity Financial with 12 bi-weekly payments of $130 has a 199% APR. After the 12th successful payment, the loan would be paid in full.
  3. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day. In some cases, we may not be able to verify your application information and may ask you to provide certain documents. Some customers applying for a loan may be required to submit additional documentation due to state law and qualification criteria.
  4. Lower APRs and longer terms when compared to a typical payday lending product. According to the Consumer Federation of America, a non-profit consumer advocacy group, payday loans range in size from $100 to $1,000, depending on state legal maximums and carry an average APR of 400% and an average loan term of two weeks. The maximum APR for a loan offered by OppLoans is 199% and loan sizes range from $1,000-$5,000 with a typical term of six months dependent on the state law.
  5. As of October 17, 2017. Ratings on third-party websites may periodically change; please check the third-party websites for up-to-date reviews and ratings. Google+ Rating: 4.8 out of 5 based on 1,824 reviews. Facebook Rating: 4.7 out of 5 based on 270 reviews.
3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.