Will a Personal Loan Affect My Credit Score?

Credit report with score on a desk

A personal loan can help cover bad debt or provide the boost you need for a larger purchase, and they can also affect your credit score. This quick and easy guide will cover:

  • How Personal Loans Work
  • How Personal Loans Can Improve Your Credit Score
  • How Personal Loans Can Lower Your Credit Score

What is a Personal Loan?

You’re probably familiar with installment loans designed to cover a specific purpose. For example, a mortgage is designed to buy a home and an auto loan is designed to buy a car.

A personal loan can be taken out to pay for almost anything, and they’re generally easy to get if you have good credit. They are unsecured, so no collateral is required. It’s true that misusing a personal loan can hurt your credit rating, but keep in mind that doing things right can see your credit score improve.

Using Personal Loans for Bad Credit Can Help Your Credit Score

If you want to improve your credit score, here are just a few ways you can use a personal loan to help:

  • Consolidating Debt: If you’re swamped by credit card debt, consider personal loans ideal bad credit loans. You can pay off all your cards and then have just one payment to deal with each month. This often improves your credit score, and you’ll avoid hefty interest payments.
  • Mixing Debt: Showing you can handle paying back a personal loan as well as managing your credit cards demonstrates good financial sense.
  • Building Trust: The more on-time payments you make on your personal loan, the more your credit score will improve.

To ensure your personal loan doesn’t negatively affect your credit score, you should:

  • Only Borrow What You Need: Larger loans can be a red flag for lenders and credit bureaus.
  • Pay On Time: Late payments will often be reported to credit agencies and lower your score.
  • Avoid Making Multiple Enquiries: If you keep applying for different personal loans, your credit score will be affected, even if you don’t end up securing them.

Personal Loans Can Make Smart Bad Credit Loans and Help Boost Your Credit Score

Xpress Cash has locations across Idaho, Michigan, and Wisconsin, so visit your closest location today to find out more — you can also contact us directly.