Your credit score can drop a few points the same week a lender approves you for a personal loan. That feels backwards, but it is completely normal.
So, does taking out a personal loan hurt your credit? The honest answer is yes, a little, at first. For many borrowers, though, the long-term effect is neutral or even positive. This guide walks through both sides so you know exactly what to expect before you apply.
The Short Answer: A Small Dip Now, Possible Gains Later
When you take out a personal loan, three things typically push your score down in the short term. A hard inquiry hits your report, your average account age drops, and your total debt goes up.
Over time, three other things can push your score up. You add an installment loan to your credit mix, you build months of on-time payment history, and if you use the loan to pay off credit cards, your utilization can fall sharply. Most people who pay on time see the early dip fade within a few months. The bigger long-term risk is not the loan itself. It is missing a payment.
How Taking Out a Personal Loan Can Hurt Your Credit
Here are the three ways a new personal loan typically lowers your score, at least temporarily.
The hard inquiry. When you submit a full application, the lender pulls your credit report. According to FICO, a single hard inquiry typically lowers a score by fewer than five points. Inquiries stay on your report for two years, but FICO scores only consider them for the first 12 months.
A younger average account age. Length of credit history makes up about 15% of a FICO score. A brand-new loan lowers the average age of your accounts, which can trim a few more points, especially if your file is thin.
More total debt. A new balance raises your overall debt load, and future lenders will factor the monthly payment into your debt-to-income ratio.
Added together, many borrowers report a temporary dip of roughly 5 to 15 points after opening a personal loan. Your exact result depends on your full credit profile, so treat that range as a rough guide rather than a promise.
How a Personal Loan Can Help Your Credit
Now the good news. A personal loan touches the two heaviest factors in your FICO score, and it can move both in your favor.
Payment history (about 35% of your score). Every on-time monthly payment adds positive history. A 36-month loan paid on time is 36 positive data points.
Credit utilization (about 30% of your score). Utilization only counts revolving accounts like credit cards, not installment loans. If you use a personal loan to consolidate $8,000 in card balances, your card utilization can drop toward zero while the loan balance sits in a category that barely affects this factor. Many people see a meaningful improvement within a couple of billing cycles after consolidating this way.
Credit mix (about 10% of your score). If your file is all credit cards, adding an installment loan shows you can manage different types of credit. Small factor, but it helps.
When a Personal Loan Is a Bad Idea for Your Credit
A personal loan is not a credit-building tool by itself, and there are situations where it can do real damage.
- You might miss payments. A payment that goes 30 days late can drop a good score by dozens of points and stays on your report for seven years.
- You plan to run the cards back up. Consolidation only helps if the cards stay paid off.
- You are about to apply for a mortgage. A new loan lowers your score and raises your debt-to-income ratio right when both matter most.
- The rate is too high. APRs vary by creditworthiness, and some loans for lower scores carry APRs near 36%. Paying that much to shuffle debt around rarely makes sense.
How to Apply Without Hurting Your Score More Than Necessary
The smartest move is to use prequalification, which relies on a soft pull that does not affect your score. You only take the hard inquiry once you pick a lender and submit a full application.
Upstart lets you check your rate with a soft pull and looks beyond your credit score, weighing factors like education and work experience. That approach can help if your score is thin or recovering, and loans range from $1,000 to $75,000 as of July 2026.
Upstart
Upstart
Upstart is an online lending marketplace that partners with banks to provide personal loans from $1,000-$75,000. Upstart goes beyond traditional lending metrics to help you find financing that considers many factors including your education and experience
Standout feature
AI-driven underwriting that goes beyond your credit score — checking your rate is a soft pull with no score impact, most applicants are approved instantly, and funds can arrive as soon as the next business day.
Fees
Origination fee 0%–12% of the loan amount
Pros
No minimum credit score required (AI-based approval)
Cons
Origination fee: up to 12%
If you want to compare several lenders at once, MoneyLion runs a personal loan marketplace that shows offers from multiple providers in minutes with no impact on your credit score. Comparing this way keeps you from submitting hard-pull applications one lender at a time.
MoneyLion
MoneyLion
Compare personal loan offers from top providers in minutes with no credit score impact with the MoneyLion Marketplace.
Standout feature
Soft-pull marketplace that surfaces prequalified personal loan offers from a network of lenders, with options up to $100,000 and partners that work with fair and bad credit
Fees
Free to use the marketplace
Pros
Compare multiple lender offers in minutes; soft credit pull to prequalify — no impact on your score
Cons
Final approval requires a hard pull from the chosen lender
Track the Impact So There Are No Surprises
Once your loan is open, watch how your score responds. A free monitoring tool like Creditship can show you the initial dip, confirm the lender is reporting your on-time payments, and alert you if anything unexpected appears on your report.
Creditship
Creditship
Get free credit monitoring and concrete advice how to improve your credit from Creditship AI.
Standout feature
AI Credit Coach. AI analyzes your credit report in depth and gives you tailored, actionable steps to raise your score.
Fees
Free
Pros
Free credit report access plus monitoring and alerts
Cons
No credit repair feature
If your score has not recovered after six months of on-time payments, check your report for errors or rising card balances.
The Bottom Line
Taking out a personal loan usually costs you a few points up front. Whether it hurts or helps after that depends almost entirely on what you do next. Pay on time every month and keep your credit cards from creeping back up, and the loan can leave your credit stronger than it started.
Before you apply, prequalify with a soft pull, compare a few offers, and make sure the payment fits your budget with room to spare. Terms and conditions apply to every offer, and APRs vary by creditworthiness.
Frequently Asked Questions
How many points does a personal loan drop your credit score?
The hard inquiry alone typically costs fewer than five points, according to FICO. Combined with a new account lowering your average credit age, many borrowers see a temporary dip of roughly 5 to 15 points that fades within a few months of on-time payments.
How long does a hard inquiry stay on your credit report?
A hard inquiry stays on your credit report for two years. However, FICO scores only factor inquiries into your score for the first 12 months, and the effect fades well before then for most people.
Does paying off a personal loan early hurt your credit?
It can cause a small, temporary dip because you lose an active account that was adding payment history. The effect is usually minor, and interest savings often outweigh it. Closed accounts in good standing stay on your report for up to 10 years.
Will a personal loan help my credit if I already have credit cards?
It may. An installment loan adds variety to your credit mix, which makes up about 10% of a FICO score. The bigger benefit comes if you use the loan to pay down card balances, since lower utilization can lift your score noticeably.
