What does a personal loan do to your credit score?

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Team MONEYME|09 November 2023| 2 minute read

You might think a personal loan can only mean bad news for your credit score.  

But it works both ways.  

Miss repayments – or, worse, default – and your score will likely take a hit. The same goes for submitting an application that gets rejected.  

But, make your repayments on time, and your score will likely benefit. 

Here, we look at the relationship between a personal loan and your credit score – the good, the bad and the ugly.  

Getting started 🎬 

When you first take out a personal loan, you might see your credit score drop slightly. Don’t be alarmed.  

This is a minor response to the increase in your overall debt. It won’t necessarily last long. 

The turnaround 🔆 

Key to improving your credit score is repaying your personal loan on time – every time.  

Put your deadlines in your calendar, and don’t miss them. Over time, this positive behaviour will help your credit score grow, by showing lenders you’re reliable.  

Don’t be late ⏰ 

Just as timely repayments might boost your credit score, late repayments might have the opposite effect – and send it downwards. 

A repayment that’s more than 14 days overdue is categorised as late and usually appears on your credit report for up to two years.  

A repayment that’s more than 60 days overdue and worth more than $150 is a default, and usually remains on your report for up to five years.  

The moral of the story? Wherever possible, repay on time. If you’re struggling with repayments, contact your lender straight away. Financial hardship arrangements might be available. 

Avoid rejection 🙅🏽‍♂️ 

The other reason a personal loan can harm your score is if your application is rejected.  

That’s because a rejection might give the impression that you’re not attractive to lenders. The more rejections, the worse the potential impact on your score.  

Luckily, you don’t have to guess what lenders want to see – we have some tips to help you prepare for your application over here. Plus, we’ve highlighted common reasons a personal loan might get declined (and how to avoid them) here. 

It cuts both ways 

A personal loan might affect your credit score positively or negatively.  

To see the potential benefits, be sure to make repayments on time, without fail – and, before applying, find out what lenders are looking for so you know you’re in the right position to take on the financial responsibility of a loan.  

Check your score for free

Do you know your credit score? Download the MONEYME app to check your score for free today.