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The Impact of Personal Loans on Your Credit Score

Personal Loans

A personal loan is a super convenient financing tool that can help you meet all your financial obligations. These loans are unsecured which means the lender offers you these loans without any collateral or guarantee. Today, you can easily avail a personal loan through a loan app and the amount gets directly disbursed into your account within a few minutes.

Instant loans not only help you meet your financial obligations, but they are also an excellent tool to improve your credit score. A credit score is a reflection of your creditworthiness. It is assigned by a credit bureau based on your credit behaviour. So, if you repay your personal loan on time and in full, your credit score can improve significantly. But an undisciplined attitude towards repayment can impact your credit score negatively. 

Read on to understand the impact of your personal loan on your credit score.

What Are the Effects of a Personal Loan on Your Credit Score?

The mere act of obtaining a personal loan does not harm your credit score. In fact, if you have never availed any kind of credit then a personal loan can help you build your credit score. Also, paying your personal loan on time and in full will help you establish a strong credit report. This will also improve your eligibility for future credit. Many companies do not offer high-value loans to people who have never availed a loan before. Thus, availing a personal loan can help you build your credit profile. 

How Can a Personal Loan Boost Your Credit Score?

1. Helps you establish a credit report

A personal loan is also very beneficial when you are just beginning to establish your credit report. Some lenders provide personal loans that are tailored for borrowers with poor or terrible credit, even though having a low credit score normally makes it difficult to get approved for most loans. As a result, you may apply for a small personal loan and establish a solid credit history before requesting a larger loan in the future.

2. Helps you build your credit history

Personal loans might assist you in building a history of on-time payments against the loan. Your payment history, which accounts for 35% of your credit score, is the most crucial aspect. Making your payments on time and in full increases your creditworthiness. Lenders are more likely to approve your loan application and offer you better loan terms. 

3. Improves your credit mix

Personal loans might help you strengthen your credit mix. Your credit mix accounts for 10% of your credit score. Having a mix of credits demonstrates your capability of handling different types of credits. It could be advantageous for you when you apply for a new form of credit; lenders are more likely to view you as a creditworthy borrower.

4. Debt consolidation can improve your loan repayment

Personal loans are very effective for debt consolidation and repayment. You can avail an instant loan to consolidate multiple ongoing debts like credit card bills, car loans or any other loan. A personal loan can help you consolidate all your loans into one single monthly payment. 

How Can a Personal Loan Hurt Your Credit Score?

A personal loan can have a positive or negative impact on your credit score. It depends on your usage and repayment attitude. Unwise usage of a personal loan can lower your credit score. Availing a loan to fulfil your lifestyle aspirations and missing out on your EMI payments impacts your credit score negatively. 

If you fail to pay your loan EMI for 30 to 60 days, then this may lead to a significant negative impact on your credit score. The lender will levy a late fee on the delayed amount and will send the report to the credit bureau. If you delay your EMI payment by 60 to 90 days, your credit score can take a major hit. This will have a severe impact on your future prospects of borrowing. For delays beyond 90 days, the lending institution may take legal action for recovery of the loan. It will also become very difficult for you to avail a loan in future.

Also, sending multiple loan applications at once can negatively affect your credit score. This is because lenders do a hard inquiry on your credit and each time a hard inquiry is made, it lowers your credit score.


An instant loan is a very effective tool that can help you meet any kind of financial emergency. But before availing a personal loan, you must know its impact on your credit score. Managing your credit in a responsible way can help you establish a strong credit profile. But failing to manage your loan in the right way can result in a negative impact on your credit profile.

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