A Personal Loan May Affect Your Credit Score
Taking a personal loan may affect your credit score in ways that could be positive or negative. If you are able to pay it off in a timely manner, it could be a good thing. But, if you fall behind, it may make your credit score worse. There are also some factors that are beyond your control.
A personal loan https://loans.usnews.com/do-personal-loans-help-or-hurt-your-credit-score is a fixed amount of money borrowed from a financial institution. That institution could be a bank, credit union, or a consumer finance company. You cannot add to the balance of your personal loan after it has been granted.
When you apply for a personal loan, the lender will pull your credit as part of the application process. They want to know what your credit score is. When a lender does this, it is called a “hard inquiry”. https://www.creditkarma.com/personal-loans/i/what-you-should-know-about-personal-loans/
Having a lender, or creditor, check your credit score usually lowers your credit score by a few points. This is why it is important to know what your credit score is before you apply for a personal loan. If you have a good credit score, losing a few points might not cause much harm. If you have a bad credit score, losing a few points could be really damaging.
A personal loan could improve your credit score. It adds variety to your credit type. FICO looks at five factors that determine your credit score: payment history, credit utilization ratio, length of credit history, new credit, and credit mix. The best thing you can do after taking out a personal loan is to make payments on time.
You will be expected to pay the debt in full by a set date. Doing so might improve your credit score. Failing to meet the deadline could lower your credit score. Stick to the schedule so you won't fall behind.
